Early 2019 Housing Outlooks Paint Mixed Picture

Mike Sorohan msorohan@mba.org

November 30, 2018

It's almost December, which means it's time for prognostications and predictions for 2019. Two early reports, from Trulia, San Francisco; and Zillow, Seattle, suggest a challenging environment for the housing market next year.

The Mortgage Bankers Association got into the act in October. Its current forecast (http://mba-erm.informz.net/mba-erm/data/images/Mtg%20Fin%20Forecast%20Nov%202018.pdf) calls for a slight reduction in mortgage originations for 2019, to $1.630 trillion from $1.636 trillion in 2018, with a slight uptick in purchase originations and a steady drop in refinancings. For 2020, the picture is a little brighter, with originations projected to reach $1.683 trillion; and in 2021, to $1.740 trillion. MBA also projects both housing starts and exsiting/new home sales to increase slightly in 2019, with the 30-year fixed interest rate hovering at around 5.1 percent.

The Trulia 2019 Housing Market Outlook (https://www.trulia.com/research/housing-predictions-2019/) offers a mixed bag:

--Nationwide housing inventory will remain tight. Even if inventory begins to pick up in more markets, it will be rising from multi-year lows and will take a long while to get back to a more balanced level between buyers and sellers," said Trulia Senior Economist Cheryl Young.

--Worsening affordability will slow down home buying activity. Despite cooling home prices, limited supply will continue to help push prices up to some degree.

--Mortgage rates will continue to rise in 2019, reaching 10-year highs.

--Expect natural disasters to impact more communities in 2019, but have a moderate effect on the housing market overall.

--More millennials will become first-time homebuyers in 2019. Of Americans aged 18-34, 21 percent say they plan to buy within the next 12 months, up from 14 percent last year.

Meanwhile, the Zillow forecast also searches for a silver lining. Zillow Senior Economist Aaron Terrazas noted while key storylines in the U.S. housing market didn't change much over the past few years, "a series of emerging trends are setting up a much different narrative" for 2019.

"Certain headwinds--including rising mortgage interest rates, higher rents and stiff competition for housing in the most desirable areas--will only grow stronger over the next year, but that won't necessarily be a bad thing," Terrazas said. "A slower-moving market is likely to give more buyers a chance to catch their breath and choose from a wider selection of homes that fit their preferences and budgets."

Going forward, Terrazas added, job growth will begin to move beyond the handful of pricey, coastal superstar cities that have driven so much growth to date, and into more affordable communities with room to grow that are eager for the opportunity to shine. "2019 looks to be a pivotal year as the market cools and transitions from one marked by robust recovery into one more in line with historic norms and more balanced between buyers, sellers and renters," he said.

Zillow's key predictions for 2019:

--The 30-year fixed mortgage will be at 5.8 percent by the end of the year.

--Rent growth will pick back up as potential buyers are turned off by higher mortgage rates.

--Commutes will get worse. Job creation has been largely concentrated in urban cores, but young adults are increasingly nesting and growing families in the suburbs. "The disconnect between these urban jobs and suburban residents will contribute to longer, more crowded commutes," Terrazas said. "In almost all the nation's largest metros, it costs more to live within a 15-minute commute to downtown."

--Cities that courted Amazon for HQ2 but weren't selected will still see more economic growth. Other companies will recognize the value in the HQ2 proposals, and investments will come, particularly from high-tech jobs, as they are priced out of traditional tech hubs.

--A record number of homes will be lost to natural disasters as the frequency and magnitude of damage from them increases. Builders and developers will focus on preventative and/or protected building materials and designs. About 15,000 homes were destroyed by wildfire in California alone in 2018, and many others by storms along the gulf coast.

--Home price growth will continue to slow. Home prices will grow 3.79 percent in 2019, according to a survey of more than 100 housing experts and economists. Home values have risen 5.6 percent since January.

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