First off, here are my 2018 predictions in case you want to see how they panned out.
Overall, I think I did alright, though my call for the 30-year fixed to end 2018 at 4.5% didn’t quite materialize.
There’s actually still time for that to happen thanks to a late rally, but it’s doubtful. Anyway, let’s get to those 2019 predictions…
1. Mortgage rates will only rise moderately, if at all
Sure, mortgage interest rates will probably increase somewhat in 2019, but it’s doubtful we’ll see anything close to the carnage we saw in 2018.
The silver lining to all the movement this year is less next year, or at least that’s the hope.
We’ve already seen some pullbacks in late 2018 thanks to the ongoing trade war and concerns of an impending recession, which could force the Fed to pump the brakes on future rate hikes.
Similarly, traders may ditch stocks and head for safe haven bonds, which would push down yields and ideally trickle down to lender rate sheets too.
Regardless, mortgage rates remain attractive when you look at historical levels, especially since home prices are still below peaks in many metros seen during the last boom.
I personally don’t see higher mortgage rates being a roadblock for most folks, though it’s obvious they can reduce overall home purchasing power.
That just means looking for cheaper homes, such as those in the suburbs instead of the big city. Or hoping for a raise at work. Or a larger down payment.
Here is the 2019 mortgage rate forecast for more on that.
2. ARMs will grab a 10%+ market share
That being said, I do expect a more meaningful shift to adjustable-rate mortgages in 2019. I’m talking 10%+ share as opposed to the current 5-7%.
This could be existing homeowners tapping equity and going with an ARM to avoid a big payment shock as their loan amounts rise.
And also new home buyers opting for cheaper financing in the face of the big, scary 5% 30-year fixed mortgage rate.
If they’re able to snag a 5/1 or 7/1 ARM in the 3% range, it might feel like the better move, especially if it’s not a forever home.
Remember, homeowners move a lot more frequently than every 30 years, so alternative loan programs may be a more ideal fit.
3. Home prices will keep going up (no bubble)
We’ve seen a lot of pessimism in 2018 and talks of a market top or near-market top, but I disagree.
Is real estate in a bubble? Nope. If anything, I’d call it growing pains as buyers and sellers recalibrate.
Sure, it’s not going to be a bidding war every time, but home prices should continue to rise in 2019 and beyond. We’ll just see smaller percentage gains, but still gains.
In other words, instead of prices rising 10% year-over-year, they might only rise 4-5%, depending on the metro in question.
Of course, not all markets will continue to see gains in 2019, and the seller’s market may tip toward a buyer’s one in some areas, or at least level out.
But with today’s crop of homeowners in great equity positions and boring old fixed-rate mortgages, there’s no real catalyst to cause a bubble burst.
A decade ago, the real estate environment was completely different. Most homeowners had the worst ARMs you could dream up, zero home equity, and many shouldn’t have even owned properties to begin with (had proper underwriting actually existed at the time).
4. We will see a strong spring home buying season
If you’re in the market to buy a home in 2019, expect another tough go at it. As noted, home prices will probably keep chugging higher.
And competition, while perhaps not as fierce, will remain, especially in the more popular areas of the country.
Even if inventory creeps up slightly, I don’t expect sellers to flood the market thanks to issues like a lack of move-up inventory and the mortgage rate lock-in effect, whereby they don’t want to forego their low fixed rate.
At the same time, plenty of Millennials are coming of age and looking to buy, despite the higher rates and prices. And if anything, these apparent headwinds can serve as motivation (urgency) to buy sooner than later.
The difference in 2019 might be that the seller trying to unload a property for top dollar that hasn’t been renovated in 30 years might be in for a rude awakening.
But sellers with nice homes in desirable areas should continue to see lots of demand.
5. Millennials will buy, old-timers will cash in
I expect Millennials to account for the lion’s share of home purchases in 2019. Many individuals in this beloved generation are at that prime buying age of 30 or so.
And a lot of them are looking to buy real estate, even if they’re not married or having kids. This demand will ultimately be good for the market, but perhaps not great for them.
For one, inventory will still be a problem next year, especially in the starter-home category, and it’s no secret home prices aren’t all that attractive at the moment.
While they might not get the best price on their first home, they’ll at least get a relatively good mortgage rate.
Those who are looking to sell a home will increasingly need to cater to the Millennial buyer – that means smart design, loads of technology inside the home, cool outdoor spaces, and close proximity to independent restaurants, bars, and coffee shops.
If you want to sell your house for top dollar, you’ll need to get rid of the doilies and the oversized curtains, oh, and also the granite countertops. Quartz please.
I expect long-time homeowners to continue to cash in and downsize/move elsewhere to realize the massive gains seen over the past several years.
Lenders and real estate agents who want their business will need to approach it differently as well, with more of a focus on technology and convenience.
If you’re using a phone to make contact, it’s probably wise to text as opposed to call.
6. Cash out refis, HELOCs, and similar home equity offerings will gain in popularity
The narrative continues to be “no one wants to lose their low mortgage rate,” but life happens.
And so I expect plenty of homeowners to start tapping into all that equity they’ve accrued over the past five or so years.
We’re going to see rate and term refis plummet, but cash out refis get a lot more popular with existing homeowners.
Same goes for HELOCs, home equity loans, and new alternative products where homeowners share in future appreciation for payment-free equity access.
I also expect more companies to pitch their home equity products a lot harder, and for others to introduce them in 2019.
If rates come down we might see a real surge in cash outs…
7. More non-QM and outside-the-box originations, looser underwriting
At the same time, I expect mortgage underwriting standards to loosen a bit more as the pool of eligible buyers and refinancers wanes.
Whenever there’s a lull in new business, lenders will begin digging a bit deeper to find the prospects they may have ignored when the sun was shining.
The non-QM space seems to be buzzing as more originators migrate to companies that can do more than the run-of-the-mill banks and lenders.
Perhaps they’ll pick up the slack, or force conventional lenders to widen their credit box to include more nonconforming stuff.
That could eventually be a bad thing if we slip back into the wild west days of a decade ago.
8. More disruptors in the mortgage and real estate space
We’ve seen a ton of companies disrupt the mortgage and real estate industries, and they will probably be even more prevalent in 2019.
I anticipate more new startups will emerge with clever ways to do things faster and easier, perhaps at the expense of human beings.
The digital mortgage will get more real and commonplace, and just about everyone will be using technology like real-time income and asset verification.
This should shorten the lengthy loan process and reduce fraud, with less ability to game the system when data is being pulled directly from the source.
I also expect more home sellers to use discount real estate brokerages like Redfin, or sell to iBuyers like Opendoor and Offerpad.
9. Mortgage layoffs will increase
Sadly, with lower loan volumes expected in 2019, mortgage lenders will be forced to adjust staffing levels accordingly. This may be seen in both sales and operations, with less need for all positions.
We’ve already seen a wave of layoffs in 2018, and there’s a good chance we’ll see the same thing next year too.
Part of this will have to do with volume, and part of it will have to do with those new technologies mentioned.
If lenders are forced to work more efficiently in light of lower profits, there’s a greater chance they’ll embrace tech.
10. Mortgage lenders will either merge or close their doors
While it’s not going to be 2007 or 2008 all over again, I do expect a greater number of mortgage lenders to close their doors in 2019, especially those that rely mostly on refinances.
Over the past several years, lenders have scurried to forge partnerships with real estate companies and agents, knowing home purchase applications will be king for the foreseeable future.
Sure, cash out refis will make up some of the lost ground given up by the lack of rate and term transactions, but it won’t be enough for companies focused solely on the refinance market.
This should also lead to consolidation in the industry with bigger lenders scooping up the smaller ones, which could result in a more concentrated market share at the top, as per usual.
Whether Amazon Mortgage materializes is another question…here are your top purchase lenders by the way.
Bonus: More home buyers will migrate out of state
Thanks to swelling affordability woes, we’ll see more buyers pack their bags for cheaper pastures. This was common back in 2006 and 2007 during the height of the last housing boom.
And if prices and rates keep going up, some will find it easier just to relocate as opposed to paying through the nose for a property that isn’t even ideal.
For example, Southern California renters may head east to Arizona or Texas, while Bay Area residents may find life more affordable in Portland.
Smaller cities may also see bigger home price percentage gains as home buyers flock inland or away from large metros in search of better opportunities.
(photo: Marco Verch)