We’ve been optimistic that sales are going to very modestly increase in 2019. For that to happen, economic growth needs to remain stable and mortgage rates need to remain under 5.25%. We expect both of those conditions to occur, which should support a modest rise in home sales. The latest monthly data indicate sales are stabilizing as existing home sales have risen the last two months, which is notable given that they had declined for most of 2018.
Where will you be looking next year to see if things are improving in the housing market, and where will you be watching to see if things are deteriorating?
The slowdown in home sales and home prices in 2018 was concentrated on the high-end market and along the more expensive coastal and formerly hot markets. While interior housing markets exhibited a slowdown, it was milder than the slowdown in coastal markets. Therefore, the key is watching what will happen in these markets and that’s driven primarily by affordability.
Generally, the monthly mortgage payment remains affordable for most buyers – and that’s good news. First-time buyers account for over 45% of purchases and their share hardly has been impacted by the run up in mortgage rates in 2018, which I think illustrates that they are a stabilizing force to the market because their willingness to purchase is high.
One of the challenges continues to be the misconceptions around the down payment and how much buyers need; the average is between 5 and 10%. Millennials are the key driver of home sales and are particularly sensitive to the down payment hurdle, so they are segment we will have to watch closely.
What’s the good news story about where the housing market is today in relation to the past decade?
Homeownership rates finally began to recover over the last few years and it is concentrated among families earning less than the median income. The other good news is we’ve had a major home price boom, but there will likely be no crash thanks to the very large home equity cushion of about $15 trillion. In the last decade, when home prices were plateauing, that cushion was declining – we are not seeing that today. Homeowners have become more conservative in using their home equity and have learned they need to build up a cushion in case home prices decline. The rise in homeownership rates and home equity is a good development for consumer financial health and the economy.
*excerpts from article by San Khater, VP & Chief Economist, Economic & Housing Research for Freddie Mac via Economic Focus