Housing affordability could worsen in the US in 2019 as interest rates rise
The housing market in the United States is slowing as 2018 comes to an end, but buyers looking for a more affordable home in 2019 might be disappointed, according to the latest real estate analysis.
Next year mortgage rates are likely to continue to rise, putting a pinch on affordability, particularly in already expensive markets, according to the 2019 housing predictions report from Zillow.
It says that some buyers may be pushed back toward the rental market, reversing the recent slowdown in rents and commutes will worsen as the mismatch grows between job creation in urban cores and millennials settling in the suburbs.
The 30 year fixed mortgage will be at 5.8% by the end of the year after rising by about 100 basis points since January 2018, and experts expect mortgage rates to continue to grow steadily through 2019.
The Zillow report points out that this will be the highest rates have been since the last recession, although still below the historic average at times of strong economic growth.
It also forecasts that rent growth will pick back up as potential buyers are turned off by higher mortgage rates. The higher rates will limit what people can afford to pay, and those who are financially stretched but considering buying a home may decide to continue renting.
And it adds that the recent downturn in rent appreciation will reverse course due to the additional demand on the rental market.
Zillow also suggests that a record number of homes will be lost to natural disasters as the frequency and magnitude of damage from them increases. About 15,000 homes were destroyed by wildfire in California alone in 2018, and many others by storms along the Gulf Coast.
As a result, it is expected that builders and developers will focus on preventative and/or protected building materials and designs.
Overall, home price growth is predicted to continue to slow. Zillow says that prices will grow 3.79% in 2019, according to its survey of more than 100 housing experts and economists. Home values have risen 5.6% since January.
‘The central storylines in the US housing market hasn’t change much over the past few years, but a series of emerging trends are setting up a much different narrative for 2019,’ said Zillow senior economist Aaron Terrazas.
‘Certain headwinds, including rising mortgage interest rates, higher rents and stiff competition for housing in the most desirable areas, will only grow stronger over the next year, but that won’t necessarily be a bad thing,’ he explained.
‘A slower moving market is likely to give more buyers a chance to catch their breath and choose from a wider selection of homes that fit their preferences and budgets. We as a nation are increasingly struggling to reconcile the places where we live or want to live with the places where we work, and infrastructure investment has failed to keep up,’ he pointed out.
‘Going forward, job growth will begin to move beyond the handful of pricey, coastal superstar cities that have driven so much growth to date, and into more affordable communities with room to grow that are eager for the opportunity to shine,’ he added.
He concluded that 2019 looks to be a pivotal year as the market cools and transitions from one marked by robust recovery into one more in line with historic norms and more balanced between buyers, sellers and renters.