The US Housing Market: What to Expect in 2019

Predicting the Housing Market

Predicting the future is always an uncertain business, and that includes the economic future. There are many factors to consider including interest rates, job reports, rising, falling, or stagnant wages, tariffs, trade wars, and trade agreements. That’s why we’ve all heard of supposedly shrewd investors and prognosticators being caught by surprise when a market like the house market collapses or when a bubble like a real estate bubble bursts.

But everyone would like to be able to predict what markets will do, and the US housing market is of particular interest because so many of us aspire to own our own homes and because the house market has often proved to be a key indicator of how the overall economy is faring.

Fortunately, there are certain trends evident that make predictions about the housing market of 2019, if still not certain, considerably more than mere guesswork. Let’s take a look at them.

The Housing Market and Rising Interest Rates

You may be aware that after a lengthy period during which interest rates were low and unchanging, the Federal Reserve Board raised them last year. A number of forecasters predict that interest rates will continue to increase in 2019.

The Housing Market and Interest Rates: What the Experts Say

According to Capitol Economics (for example), the Federal Reserve Board is likely to raise interest rates twice more in 2019. To support this prediction, they cite the two-year Treasury increase from 2.63% to 2.82% and the ten-year increase from 2.84% to 3.08%.

It seems reasonable to expect this will have a negative effect on the housing market. Higher interest rates means higher mortgage rates and higher mortgage rates seem likely to increase housing prices. Since mortgage rates tend to rise and fall with the ten-year Treasury yield, this information suggests a continuing rise in borrowing costs in general and mortgage rates in particular.

Higher mortgage rates do seem as if they may have had a negative effect on home sales with permit figures weak and home sales falling off in the last two months of 2018.

It seems reasonable to anticipate a continuing significant downturn. Some prospective homebuyers may look at these higher prices and decide they can’t afford to buy after all or that it would be prudent to wait and see if housing prices come down.

Still, it’s worth noting that not all forecasters agree about how and to what degree rising interest rates will actually affect the house market, which is to say, whether home prices will rise of fall. Some home sellers may try to compensate for higher mortgage rates and the possibility of diminished demand by lowering prices.

The Housing Market, Inventory Shortage, and Foreign Investment

During 2017, foreign investment in the US housing market was strong and supported higher prices and job creation, particularly in a time of diminished inventory, but according to the MReport, it fell off by 2% in the spring of 2018 as compared to a year earlier. To look at it another way, foreign buyers and recent immigrants accounted for 8% of the existing home sales in March 2018, down 10% from the year that ended in March 2017.

Continuing weaker foreign demand in the real estate market will work to depress housing prices. Stronger foreign demand would boost them.

Your Prospects in the 2019 Housing Market

If housing prices do come down as many forecasters predict, that will benefit first-time homebuyers but also work to the detriment of those who have already purchases houses and now suffer a loss of equity.

The Overall Housing Market and Smaller House Markets

Putting all this information and forecasts together, the rising price of borrowing, rising mortgage rates, and all the rest of it, it looks as if the overall housing market could well suffer a fall in prices. But it’s worthwhile not just to consider the overall housing market but the specific markets in which you want to sell or buy property. If prospective homebuyers find that the homes in a particular housing market are beyond their means, instead of just giving up, they may consider other areas and give that particular housing market a boost.

Iowa provides a case in point.  Its new development scene is thriving, and the same is true for a number of other small or mid-sized housing markets.