We are mere days from the start of the new year and with it, comes an onslaught of expert predictions from a range of industries. Nerdwallet recently put together a list of the top nine trends for the coming year, which outline another challenging year for home buyers (though less so than in recent years), tight inventory, home price and mortgage rate rises, and more.
More Homes for Sale?
We have been in a decidedly seller’s market for over six years now and that trend is set to continue into 2019. As Nerdwallet outlines, “a prolonged seller’s market is not the ideal situation for home buyers,” yet there is some new hope, as the number of homes available for sale is expected to increase in the coming year. It will not, however, outpace pend-up demand, which is set to exceed supply.
Just how bad is the housing shortage? According to Nerdwallet research, Freddie Mac “estimates that 370,000 fewer homes were built in 2017 than were needed to satisfy demand resulting from population growth.” Until construction escalates at a larger pace, inventory will remain constricted in the housing market.
Home Price Appreciation
Home prices will continue to grow in 2019, but not at the astronomical double-digit rates seen in recent years. As Frank Nothaft, chief economist of CoreLogic said in a statement, “rising prices and interest rates have reduced home buyer activity and led to a gradual slowing in appreciation” in 2018. It is for this reason that the National Association of Realtors predicts a nationwide gain of 2.5 percent in 2019.
Mortgage Rate Hikes
As has been widely reported in 2018, mortgage rates are set to increase in 2019 by an estimated half percentage point—or less—through the year. This represents a stagnation in mortgage rate growth compared to 2018, in which rates increased by three-quarters of a percentage point from January 1, 2018 to mid-December.
Affordability will undoubtedly be affected by the rise of home prices and mortgage rates in 2019. As Danielle Hale, chief economist of Realtor.com® said in their annual report, “many markets are reaching the point where a typical home price is bumping up against affordability limits.” Hale predicts that these regions may see even slower home price growth, as gains work to fall back into line with incomes.
Many home builders will respond to the need for affordability and starter homes by building smaller—and consequently more affordable—homes. Nerdwallet says that “according to the U.S. Census Bureau, the median size of single-family homes started in the third quarter of 2018 was 2,320 square feet. That’s 4.9% smaller than the median size of new homes three years earlier, at 2,440 square feet.”
First-Time Buyers Leap into Homeownership
First time homebuyers have dominated the market for the last decade and that is not expected to change anytime in the near future. Pre-mortgage crisis, first time buyers represented roughly 40 percent of mortgage borrowers. Today, that figure is closer to 60 percent. Tian Liu, chief economist of Genworth Mortgage Insurance, estimates that from 2007 to 2015, around 3 million first time homebuyers delayed their purchase, but are now reaching ages in which they can no longer afford to delay and are leaping into homeownership.
Easing Lending Standards
Following the financial crisis, the mortgage industry placed stringent standards on borrowers, to ensure they could repay their loans and avoid risky mortgages. Now, market experts say lenders overcorrected in requirements, and many lenders are (and will continue) to ease standards and open home loans to more consumers. The relaxed standards can mean less documentation required, lower credit scores accepted, and larger loan-to-value ratios (which equates to lower down payments).
As Nerdwallet outlines, “it’s almost as predictable as May flowers following April showers: Whenever rates on fixed-rate mortgages go up, you’ll see more borrowers opting for adjustable-rate mortgages. It happened in 2019 and it could continue in 2019.”
With an ARM loan, the introductory rate is typically lower than that of a fixed-rate mortgage, which means the borrower will experience lower monthly payments for the first few years. It also means, however, that borrowers are taking on the risk that their rate—and consequently their monthly mortgage payment—could increase when rate adjustments are made.
Sellers Could Struggle
Gone are the days of run-up bidding wars and astronomical sales prices, and sellers that fail to realize that fact will struggle when they list their homes. A smartly priced home and tailored marketing strategy, however, will still see sellers reaping a great return on investment.