What does crystal ball hold for housing market in 2019?

Written by
David Mully
Read Time: 5 minutes

Whether you’re looking to buy a home or refinance a home loan in 2019, forecasting where the housing market will go in the new year can be difficult. When is the best time to buy? Should you stay in your current home and refinance to a lower rate?

Those questions and many more were answered by housing market experts we talked to, from real estate agents to loan officers and bankers. We asked them to look into their crystal ball for 2019 and predict what will happen to the housing market. Here are some forecasts they made:

Rising interest rates will hurt affordability

The Federal Reserve has suggested that it will raise interest rates in December 2018 and three times in 2019, which eventually end up affecting interest rates on home loans and home equity lines of credit.

The National Association of Realtors, or NAR, predicts mortgage interest rates will average 5.3 percent and go as high as 5.5 percent by the end of the year. Monthly mortgage payments are forecast to increase 8 percent, putting homeownership out of reach to first-time buyers, the group says.

With the Fed planning to raise interest rates a few times in 2019, “we believe that the housing market will remain flat at least for another two quarters,” says Shane Lee, an analyst at RealtyHop.

John Myers, an owner and broker for Myers & Myers Real Estate in Albuquerque, N.M., says he doesn’t think the Fed will raise rates three times in 2019 as its chairman has said it will.

“The housing market will be in big trouble if interest rates are increased four times by the end of 2019,” Myers says. “My forecast is the Federal Reserve will raise interest rates twice by the end of 2019.”

Rising home prices

This is almost a “duh” prediction, since home prices seem to rise regularly. Prices for entry-level homes, which are the most in-demand levels of real estate, will rise, according to NAR.

Home prices are expected to rise 2.2 percent over the year, NAR says.

“For the past five years we’ve seen home prices soar, mainly driven by a strong job market, a housing shortage and low interest rates,” says Ralph DeFranco, global chief economist at Arch Mortgage Insurance Company in Walnut Creek, CA. “But now demand has weakened as higher mortgage rates and a widespread sense that prices are too high are holding back potential home buyers.

“We’ll see a continued cooling over the next several months but I don’t expect an outright burst unless mortgage rates spike to 6 percent or higher.”

DeFranco said he expected national home prices to grow 2-4 percent in 2019, “as long as we continue to have a constrained housing supply and ample job opportunities.”

Fewer home sales as owners stay put

While prices are expected to rise, fewer homes will be sold. Existing home sales are projected to drop 2 percent, according to NAR.

DeFranco, the Arch Capital economist, expects sales to decline by 3-6 percent.

Instead of selling their home and buying a new home with a new, possibly higher interest rate, more homeowners are expected to stay in their current homes and fix them up. This could lead to fewer people refinancing their home loans because they’re unable to find a better loan rate than they already have.

Seller’s market with modest inventory gains

NAR predicts that inventory will grow at a moderate pace, with less than a 7 percent increase. Its chief economist says a buyer’s market isn’t expected within the next five years.

Most of the new inventory is in the mid- to higher-end price tier, not entry-level, NAR says

“Although it remains a seller’s market, sellers will need to be mindful of their increasing competition and shouldn’t necessarily expect to name their price and get it in full — a change from the past few years,” the Realtors group said in a statement.

“With less demand in the market, there will be fewer bidding wars and multiple offers,” it said. “However, with inventory expected to remain limited in most markets, sellers who price competitively can still walk away with a handsome amount of profit, but not the price jumps observed in previous years.”

A better spring

Ever the optimists, some real estate forecasters said they expected the busy spring home buying season to be strong in 2019.

“Industry forecasts anticipate that 2019 will bring another strong spring home buying season with purchase mortgage originations expected to increase by more than 4 percent,’ says Ann Thompson, consumer lending retail sales executive at Bank of America.

Fewer new homes being built

Single-family home construction continued to be down or flat year over year, and 2019 should be slow for new home construction, says Dan Snyder, CEO and founder of Lower, an online mortgage and refinance company.

“We have seen a recovery from the crash when new home construction bottomed in 2009, but several factors including a labor shortage and trade tariffs creating an increased material cost, I predict that 2019 will be a lackluster year for new home construction,” Snyder says.

Housing starts aren’t on pace to meet demand, with the low construction rate leading to rapidly rising prices for new homes. The start of homes being built reached a 10-year high at the start of 2018, according to the U.S. Census Bureau, but haven’t reached that January peak since then.

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