2019 Housing Outlook for Real Estate Investors

The U.S. housing market will continue to face headwinds that likely will grow in strength and number in 2019, according to seven leading housing economists interviewed by Think Realty’s Housing News Report for our annual housing outlook report.

Home affordability challenges exacerbated by rising mortgage rates will slow home price appreciation in 2019 to the low single digits — the most optimistic prediction from the seven economists was a 4.4 percent increase. Meanwhile a slowing economy could further weaken demand for housing — although only one economist expects that slowing economy to fall into recession territory in the next two years.

We asked each economist seven questions relating to housing trends they expect in 2019. To the right is a list of the economists interviewed along with a table of contents for each question covered. Given the wealth of content provided, for each section we highlight a few key takeaways.

The 7 Economists

1. Mark Zandi, chief economist, Moody’s Analytics
2. Lawrence Yun, chief economist, National Association of Realtors
3. Aaron Terrazas, senior economist, Zillow
4. Len Kiefer, deputy chief economist, Freddie Mac
5. Tendayi Kapfidze, chief economist, LendingTree
6. Matthew Gardner, chief economist, Windermere Real Estate
7. Doug Duncan, chief economist, Fannie Mae

The 7 Questions

1. What will be the most important housing market trend(s) in 2019 and why?
2. What is your outlook for existing home sales and prices in 2019? Why? Implications?
3. What is your outlook for new home sales and prices in 2019? Why? Implications?
4. What is your outlook for homeownership rates in 2019? Why? Implications?
5. Where are mortgage interest rates headed in 2019? Why? Implications?
6. Do you expect a recession in 2019 or 2020, and if yes how will that impact the housing market?
7. How will population and job migration patterns impact regional housing trends in 2019?

#1: What will be the most important housing market trend(s) in 2019 and why

Zandi: “Rents and house prices continue to rise strongly, outpacing income gains, creating increasingly serious affordability problems for lower and middle-income households.”

Yun: “The housing market in 2019, after a period of uncertain direction and swings, will turn out to be quite boring.”

Terrazas: “Home sales and broader economic activity could slow more substantially in a handful of regional markets — primarily in the least affordable parts of the country — but it will pick up in more affordable areas.”

#2: What is your outlook for existing home sales and prices in 2019? Why? Implications?

Duncan: “The peak existing home sales market, 2017’s 5.5-million-unit sales pace, is already behind us.”

Terrazas: “With rising interest rates, demand should soften — both from increasingly stretched first-time buyers and from repeat buyers who opt against moving.”

Kiefer: “With the population growing and the millennial generation showing up in the housing market, I would expect to see modest growth of 1 percent or so in existing home sales.”

#3: What is your outlook for new home sales and prices in 2019? Why? Implications?

Gardner: “Builders are still struggling with high costs for land, labor and materials, and that will hold them back from starting significantly more homes.”

Yun: “As builders shift towards lower-priced homes — to the degree they can since labor, land, and material costs are rising — they can easily find buyers. Building McMansions will be problematic.”

Kapfidze: “As builders have more pricing and incentive flexibility, new home prices could actually decline in 2019, the extent of which will depend on the mix of homes and the extent of discounting.”

#4: What is your outlook for homeownership rates in 2019? Why? Implications?

Duncan: “The homeownership rate will likely remain well below its pre-recession peak, which was fueled by loose lending standards.”

Zandi: “The strong job market and somewhat easy underwriting standards will support more homeownership, but higher mortgage rates and lower housing affordability will constrain first-time homebuyer demand.”

Kiefer: “The U.S. homeownership rate has ticked up in 2018 and I expect that to continue in 2019.  We looked at young adult homeownership and found significant pent up demand amongst those ages 25 to 34.”

#5: Where are mortgage interest rates headed in 2019? Why? Implications?

Kapfidze: “The labor market and inflation expectations are upside risks to rates while political instability, including trade tensions, are downside risks.”

Terrazas: “A 30-year, fixed rate, conforming mortgage of close to 6 percent — which, while still low by historic standards, will impact certain buyers’ budgets and force some to consider smaller, less-expensive homes and/or homes in somewhat more affordable areas.

Kiefer: “The era of high homebuyer affordability and dirt-cheap mortgage rates is probably over.”

#6: Do you expect a recession in 2019 or 2020, and if yes how will that impact the housing market?

Gardner: “The recession itself will likely be caused by the Federal Reserve raising interest rates too quickly or the U.S. Administration continuing its trade war with China.”

Kiefer: “Unlike after the Great Recession, the housing market recovery after the next recession may be exceptionally strong.”

Kapfidze: “A recession could have mixed effects, lowering sales but also lowering rates, which could support prices.”

#7: How will population and job migration patterns impact regional housing trends in 2019?

Yun: “Hello Florida, Tennessee, Texas, and Nevada. Increasing number of tax filers will begin to recognize a higher cost of living in California, Connecticut, Illinois, New Jersey, and New York from inability to fully deduct mortgage interest and state-and-local taxes.”

Terrazas: “The long-term trend toward less mobility won’t fundamentally shift, but we should see slightly higher migration rates as the least affordable areas push people out.”

Kapfidze: “Regions that historically benefit from migration will continue to do so. These are largely in the south, particularly Florida due to retirees and increasingly Texas due to its labor market.”