TR-HNR-January-2019-Digital

FEATURED ARTICLE: 2019 HOUSING OUTLOOK

What is your outlook for existing home sales

and prices in 2019? Why? Implications? 2

“With rising interest rates, demand should soften — both from increasingly stretched first-time buyers and from repeat buyers who opt against moving.”

DUNCAN: We expect existing home sales to stabilize in 2019, edging up slightly from the 2018 level to 5.4 million units, as the labor market continues to improve amid a rise in mortgage rates that is more gradual than the increase seen in 2018. Home price appreciation moderated during the second half of 2018 because of an increase in rates and a cooling in demand. As a result, the inventory of homes available for sale increased, helping improve the supply-demand imbalance. We expect home price appreciation to slow further, with the FHFA (Federal Housing Finance Agen- cy) purchase-only index rising about 4 percent in 2019 (fourth quarter- over-fourth quarter). That’s more than one percentage point slower than the projected increase in 2018. The impli- cation is that the peak existing home sales market, 2017’s 5.5-million-unit sales pace, is already behind us. ZANDI: Home sales will be flat in 2019 and house price growth will con- tinue to slow into the low single-digits. Higher mortgage rates combined with the previously strong run-up in house prices will weaken housing affordabil- ity and weigh on housing demand. Last year’s tax law, which scaled back various tax benefits for single family housing, is also hurting house prices in parts of the country where taxpay- ers rely on these benefits, such as the Northeast and California. Sales and prices will be weakest for high- er-priced homes.

TENDAYI KAPFIDZE

Economist

2019 Existing Home Sales

2019 Existing Home Prices

Zandi

Flat

Low single-digit increase

Yun

Up 1%

Up 2%

Terrazas

Down to 5.2 million units

Up 1.2%

Kiefer

Up 1%

Up 4% Up 3%

Kapfidze Gardner Duncan

Down 2% to 5%

Down 1.6%

Up 4.4%

Up slightly to 5.4 million units Up 4%

“The peak existing home sales market, 2017’s 5.5-million-unit sales pace, is already behind us.”

DOUG DUNCAN

ment in total home sales next year. However, if the Federal Reserve con- tinues to raise interest rates in 2019 at about the same pace as it did for 2018 — we expect to have seen four rate hikes in 2018 — to preempt rising inflation even as economic activity slows, we expect total home sales would likely decline in 2019 for the second consecutive year.

from a decline in affordability in 2018 because of rising mortgage rates and tight for-sale inventory. This low inventory of homes for sale helped boost home price gains so much that they outpaced house- hold income growth. We are seeing improving inventory conditions as well as moderating home price appreciation heading into 2019. Also,

labor market strength and wage growth have trended up. We expect that economic growth will moderate to 2.3 percent (fourth-quarter-over fourth quarter) in 2019 from a pro- jected 3.1 percent in 2018, due to tighter financial conditions and fad- ing fiscal stimulus. If mortgage rates increase gradually in 2019, as we expect, we should see an improve-

YUN: Home sales will rise by an unspectacular 1 percent and home prices will rise by only 2 percent, the slowest appreciation since 2011. Rising mortgage rates in themselves are a negative, but the reason for the increase is due to the positive news of continued job creation in the econ- omy. What it means for consumers are that they no longer need to make hurried decisions, and home sellers need to be realistic about how to price the home to the market. TERRAZAS: We expect home sales to slow in 2019, averaging around 5.2 million units at a seasonally adjusted

annual rate (SAAR) and for the median price of existing homes sold to rise 1.2 percent. Tight inventory has been weighing on sales over the past three years despite strong demand. With ris- ing interest rates, demand should soft- en — both from increasingly stretched first-time buyers and from repeat buyers who opt against moving. But inventory constraints are starting to ever-so-modestly ease which should lift sales above where they would have otherwise been.

“One of the most important trends in housing next year will be the continued resurgence of first time buyers — especially millennials … this demographic is likely to buy more homes in 2019 than any other age cohort.”