Last updated on April 3, 2019
A year ago, several experts predicted the new tax law would cause a slowdown in the housing market. So far, the limitations on mortgage-interest and property-tax deductions haven’t had a negative impact. Instead, rising mortgage rates and home prices are doing more to put a damper on the market.
Economic uncertainty brought on by global trade tensions, stock market volatility and the government shutdown also isn’t helping. In this environment, potential home buyers can be reluctant to make a large purchase such as a house. The last sustained government shutdown in 2013 saw a slump in home sales.
It is too soon to tell whether the recent decline is a temporary lull or a major pullback.
In their forecasts for 2019, real estate experts anticipate the housing market slowing down, but not stalling, with prices and mortgage rates moderating.
“If mortgage rates trend sideways next year, as we anticipate, and home price appreciation continues to moderate, improving affordability should breathe some life into the housing market,” said Doug G. Duncan, chief economist at Fannie Mae.
Below is a snapshot of what housing experts are forecasting for 2019.
National Association of Realtors
The National Association of Realtors expects home sales to flatten and home prices to continue to increase, though at a slower pace.
“The forecast for home sales will be very boring — meaning stable,” said Lawrence Yun, NAR chief economist.
NAR expects sales to increase 1 percent to about 5.4 million and the median home price to rise 3.1 percent to around $266,800 in 2019, and $274,000 in 2020.
“Home-price appreciation will slow down,” Yun said. “The days of easy price gains are coming to an end, but prices will continue to rise.”
Inventory continues to be a concern.
“All indications are that we have a housing shortage,” Yun said. “If you look at population growth and job growth, it is clear that we are not producing enough houses.”
Because of diminishing affordability from mortgage rate and price increases, Realtor.com forecasts a 2 percent decline in home sales. But buyers looking for high-end homes in pricey metro areas should have more options.
Realtor.com expects price growth to slow, rising just 2.2 percent in 2019.
“Inventory will continue to increase next year, but unless there is a major shift in the economic trajectory, we don’t expect a buyer’s market on the horizon within the next five years,” said Danielle Hale, chief economist for Realtor.com.
Realtor.com has mortgage rates averaging 5.3 percent in the coming year and reaching 5.5 percent by the end of 2019, making the average home purchase 8 percent more expensive per month than 2018.
Redfin sees the housing market cooling in the first half of the year. Price growth will settle around 3 percent after reliably exceeding 5 percent since the start of 2015.
“There’s quite a bit of uncertainty around our price forecast,” said Daryl Fairweather, Redfin chief economist. “There’s a real chance prices could fall below 2018 levels, putting up negative growth for the first time since 2011.”
Metro areas such as Seattle, San Francisco, Los Angeles, Denver and Portland, Ore., which saw the most price growth in the first half of 2018, will experience the biggest slowdowns in price growth in the first half of 2019.
Redfin predicts the homeownership rate will grow more rapidly in 2019 as speculators and investors exit the market.
Fairweather expects mortgage rates to rise to 5.5 percent by the end of 2019.
According to Zillow, rising mortgage rates are encouraging homeowners to stay put and discouraging would-be buyers.
“Rising mortgage rates will set the scene for the housing market in 2019,” said Aaron Terrazas, senior economist at Zillow. “They will affect everyone, driving up costs for home buyers and creating more demand for rentals. Even current homeowners could start to feel locked into their mortgage rates.”
Zillow anticipates mortgage rates will reach 5.8 percent and home values will grow by 3.79 percent in 2019.
National Association of Home Builders
After a strong start last year, home-builder confidence fell to its lowest level in more than three years by the end of 2018. Several of the big home builders downgraded their sales or orders forecasts for 2019.
“The market has slowed,” said Robert Dietz, chief economist for the National Association of Home Builders. “We’ve revised our forecast down.”
Builders face significant head winds because of the “five Ls” — labor, lots, laws, lending and lumber. A labor shortage, lack of buildable lots, onerous regulations, strict lending and tariffs on supplies such as lumber have increased their costs, says Dietz.
NAHB predicts new-home sales will be around 628,000, the same as in 2018. Single-family construction, which includes for-sale and not-for-sale homes, will increase nearly 2 percent from 2018 to around 900,000 units. Based on demographics, that’s 200,000 to 300,000 less than the market could absorb and well below the average number of starts pre-housing crash. From 2000 to 2003, the average was 1.3 million.
Builders have taken a lot of heat for not building enough homes or building primarily luxury homes. But Dietz said there has been an uptick in townhouse construction, a more affordable single-family option.
“The market has been moving away from higher-end, higher-priced, larger homes over the last two or three years to more entry level,” he said. “Our surveys show we’ve gone from a new construction market that had been less than 20 percent dedicated to first-time home buyers to now closer to 30 percent, which is closer to historic norms.”
Mortgage Bankers Association
The Mortgage Bankers Association expects moderate growth in home purchase mortgage originations, with refinance volume continuing to decline. It anticipates the 30-year fixed-rate mortgage will level out at 5.1 percent.
“The supply of homes for sale and lack of affordability continue to be challenges for the housing market,” wrote MBA economists Michael Fratantoni and Joel Kan. “Even with the anticipated cool down in economic growth, we expect that housing demand will remain strong, mortgage rates will stabilize, wage growth will increase and home price growth will moderate, providing favorable conditions for growth in the home purchase market.”
Greg McBride, Bankrate.com’s chief financial analyst, predicts the 30-year fixed rate will pass 5.25 percent before going into a swoon late in the year to finish around 4.35 percent.
As the Federal Reserve trims its balance sheet and pushes up short-term interest rates, HELOCs (home equity line of credit) could be affected because many are tied to the prime rate, which follows the Fed’s benchmark rate.
“Each rate hike means the minimum payment on a $30,000 home-equity line increases by $6,” McBride said. “I expect the Fed to raise rates twice next year, bringing the increase in minimum payments to $12.50 per month by year end.”
HELOC rates will rise and then flatten out, McBride said. He expects the average HELOC rate to reach 6.85 percent by the end of 2019.