2018 Year in Review
2018 began with historically low interest rates at 4.04%, which shifted the market to a sellers advantage. Once the market shifted it caused home prices to soar, leading to the highest home prices in over a decade. As the year ended interest rates neared 5%, which lowered the buying power. With less buying power there has been a small shift in the market, what does all of this mean for 2019?
Mortgage Rates Will Continue to Rise
Although mortgage rates rose steadily over the last two years it still remains lower than they did during the recession. With this in mind the Fed intends to keep raising rates throughout the first quarter of 2019. Studying the chart provided by themortgagereports.com, it is projected that mortgage rates will reach 5% by March of this year. The continued rise in mortgage rates will continue to lower the buying power, which isn't exactly a bad thing. As the buying power lowers it will result in a slowdown of sales which will also slow down the price momentum. The steady rise in home prices made it difficult for first time home buyers to find a proper fit. As the momentum slows it will give some of these buyers a chance to find a home that meets their budget.
Who will Purchase Homes in 2019?
The main factors that will affect the housing market in 2019 will be rising interest rates and increased millennial demand. The rising rates will make houses less affordable, and inherently price some buyers out of the market. On the other hand the largest group of millennials will be turning 29 next year, which is considered to be the peak home-buying age. This will lead to an increase in first time home buyers as millennials will make up the largest segment of the buyers in 2019. According to Danielle Hale, chief economist for realtor.com millennials will account for 45% of mortgages, while Gen Xers make up 37% and Boomers will produce about 17% of the market.
There will be More Inventory in 2019.
The market has seen an increased number of houses being listed and an increase number of newly constructed homes. This is met with high interest rates which inadvertently lowers the amount of homes being purchased. This combination will result in a slight uptick in the amount of homes available. Although there will be more homes available, the prices are expected to continue to rise throughout 2019.
The Grand Picture
- Mortgage rates will continue to rise, can get as high as 5.9%
- Home prices are projected to increase by 3%
- Millennials will make up most of the buyers
- An increase in the amount of first time home buyers
- Buyers can expect to see an uptick in inventory
- Slower price momentum will allow incomes to catch up to the market
- A slowdown in sales will allow inventory to return to normal levels