’s Housing Market 2019 Forecast – Economic Insights
Articles,  Blog’s Housing Market 2019 Forecast – Economic Insights

hi this is Audrey Whittington with and today we’re gonna be talking about economic insights and I’m
pretty excited about today’s topic. Because we’re gonna be talking about the 2019
forecast with Danielle Hale the chief economist at so Danielle,
like everybody wants to know what do we have to look forward to well it depends
on whether you’re a buyer or a seller and whether or not you’re looking
forward to this year right so our 2019 forecast calls for a tougher road ahead
for both buyers and sellers. It’s not to say that it’s going to be impossible but
there are factors that are going to make 2019 a little bit more difficult
regardless of what side of the housing market you’re on so to dig into buyers
for the for the first perspective buyers have some bright spots we do expect more
inventory and 2019 coming to market so they will have more options to choose
from however it’s not going to be so much inventory that we see a lot of
price pressure. Right we see home prices slowing so they will grow at about 2%
pace instead of the 4 to 5% pace that we’ve seen in sales prices recently so a
slower pace of increase but they’re still increasing so buyers are still
looking at more expensive housing coupled with the fact that mortgage
rates are rising so that’s a trend we’ve had for the past couple years and so we
expect that to continue in 2019 mortgage rates at the end of 2018 are going to
finish the year right around 5% and we expect them to finish next year around
5 1/2% so they’ll be about a half a percentage point higher
those two factors combine price increases and mortgage rate increases
mean that we’re looking at about 8% more in the monthly payment so
then you combine that with income growth of around 2 to 3%
things are gonna get a little bit more expensive for buyers and that’s that’s
why we say it’s going to be tougher it’s not impossible but if you’ve been
looking for a while it’s not gonna get easier on that front yet so they might
start to feel a small squeeze but not a lot I mean what I heard was about a 5%
differential right which was so-so and it seemed that mortgage rates have been
pretty steady and I think the Fed just came out and said that more they’re
actually gonna hold mortgage rates but you’re saying you put any think we’ll
see a bit of an increase next year yeah so it’s hard to interpret what the feds says.
Some people didn’t read chairman Powell’s comments recently as we’re
gonna wait and see and he did emphasize that the Fed is being data dependent so
they’re looking at the data and how data on the economy evolves and what that
means for the rate path they’ve been in this tightening cycle for the last
couple years now and we expect it to continue
most forecasts had called for three to four increases in the Fed rate the Fed
Funds rate next year so 2019 we’re expecting two to three in line with
continued growth in the economy but if for some reason economic growth shows
signs of starting to slow which it hasn’t yet but it could if it does then
they might Ratchet back on their expectations for if I had a bunch
increase Fed Funds rate increases that they’re planning to do and so and he
said you know we’re closer to the neutral range on the federal funds rate
and earlier in the year in October I think it was he had said something about
you know we still are a couple steps away from a neutral Fed Funds rate level
so those two things are are consistent he hasn’t really changed his position
but he has changed the focus of his position that’s caused some people to
think well maybe they’re gonna move slower than they otherwise would have
let’s talk with the Fed Funds rate what does that really mean how does that play
in I think a lot of consumers don’t really understand what that is yeah so
the Fed Funds rate is a short-term rate that they set for overnight borrowing
between banks and it has this cascading effect of you know once the short-term
rate is set at the rate that it’s set then that impacts long-term rates
because you can create arbitrage opportunities to make money basically
you can loan the Fed money banks can on a short-term basis and then lend it out
to others and that basically cascades all the way up the yield curve so
mortgage rates are affected by those short-term rate zones and affected by
the same factors that drive those for short-term rate trends so the overall
strength of the economy but they’re not tied together in lockstep so mortgage
rates you know most people take out a mortgage for 30 years or we’re setting
right 15 or 30 years so long-term rates and then they tend to stay in their
homes for about 10 years so we see mortgage rates tied very closely to the
ten-year rate because I certainly it’s an English time horizon and a ten
year rate is affected by these short-term rates but also by the general
outlook on the overall economy because people are thinking about not just
what’s going on now but what’s gonna happen over the next ten years so that’s
why the Fed fund rate is sort of important to the mortgage rates but so
is the general economic outlook and I think in terms of the general general
economic outlook obviously it was a lot of politics involved and and sort of
where we are politically so how does a buyer navigate all of that so they’re on and they’re looking how do they navigate and decide what to do for
2019 well they can do things like look at our forecast yeah so they don’t have
to try to piece together their own trends based on what they see in the
market we’ve done that for you so by all means look at our forecast we expect
mortgage rates to continue to increase based on the fact that we expect the
economy to continue to improve in 2019 and so we’ll go from about 5 and 1/2 or
sorry a 5% rate at the end of 2018 to roughly a five and a half percent rate
to the end of 2019 so half a percentage point increase it’s not terrible but but
rates are gonna get higher so if you’re thinking about this from the perspective
of a buyer you want to think about how you’ll navigate this right so think
about what you qualify for now in a home I maybe test out what happens to your
budget if mortgage rates do go to five and a half percent so that you don’t
have to totally revamp your search you already know what your budget limit is
at that higher mortgage rate well let me throw you a bit of a curveball okay so
what about the tax bill how does the tax bill affect the housing market he has in
the tax bill and I know you’re not a tax expert so do the best you can here all
right so the tax bill so it’s not new it passed at the end of 2017 right it’s
been in effect for all of 2018 and in fact most people have probably already
seen slightly higher take-home pay because the IRS changed withholding to
account for the new tax plan yep but no one’s actually filed their taxes
under this new plan because probably your taxes sometime between January
February and April when they’re due so that’s when it’s really gonna hit home
for a lot of homeowners and renters are going to see exactly how much they
benefit or lose out from this tax plan you know
we know that the tax plan had a couple of changes that directly affect the way
you know homeowners and renters are going to do their taxes so for renters
they didn’t really have a lot of tax benefits under the old tax plan so for
most of them it’s going to be a positive they were less likely to itemize
deductions because of the structure in the old tax plan and should be more like
so they should benefit from the higher standard deduction so it’s good to know
for homeowners they were likely to itemize under the old tax plan about
half of homeowners itemize for the prosecutors own homes interesting
because you have to have mortgage debt so about a third of the owners don’t
have any mortgage debt so really they weren’t necessarily cute or likely to
itemize so they’re less so homeowners are more likely to itemize and they may
not going forward because there’s a limit on the amount of mortgage interest
you can deduct so it and that’s the new part right I mean basically when you
talk about itemize you’re talking about basically deducting it you know so it
was a powerful deduction for homeowners and we’re saying that now there’s a cap
so people really can only only there’s a limited tax advantage yeah for deducting
mortgage interest but actually in fact the bigger change is that the standard
deduction so that okay let me take a step back so there are two ways to do
your taxes you can either take the standard deduction it’s a lump sum you
subtract it no matter how you spend your money how much you give away how much
you say if it doesn’t matter you take the standard deduction and then you you
know you subtract that off your income then you pay taxes on the rest okay or
you can itemize your deductions so you don’t take that standard deduction
instead you’re gonna list out specifically the tax advantage things
you spend your money on so you get to take money off for mortgage interest you
used to be able to take state and local income and property taxes unlimited
that’s a change so your mortgage interest is now limited you can only
deduct up to $750,000 interest on a mortgage up to $750,000 versus a million
under the old tax rules okay used to get unlimited state and local taxes now you
can only deduct up to $10,000 so well charitable contributions you can just
those from your income as well that was unlimited it stays unlimited so no major
change there that’s group and there are some others minor tweaks but those are
the big ones but ultimately it only makes sense to itemize if the dollar
amount of your itemized deductions exceeds the standard deduction right and
so the fact that the standard deduction into the new plan is a roughly double
but it was under the old plan means we’re going to see why few fewer
itemized errs okay I think that was I feel like that was a little mini tax
course that was awesome so you’re definitely more of an expert than you
say so hopefully that’s super helpful let’s kind of change gears here a little
bit let’s let’s go left and let’s talk about Amazon let’s talk about the Amazon
headquarters obvious there was a huge announcement being in New York and in DC
or the sort of the Northern Virginia area so what what is your take on sort
of that announcement and how it’ll affect those housing markets yes it’s a
big question right now yes so the nice thing for you know there were 20
candidate markets 19 in the US and one in Canada and the nice thing about
Amazon choosing New York and the DC area specifically Northern Virginia is that
those are among the biggest markets that they would have chosen so when you think
about the disruption of a new company coming in with 25,000 jobs those are big
job big jobs markets and so it’s gonna be less of a boost like relative to if
they’ve gone into a smaller market where the market would have been over more
they would be the number one employer you see they really the government is
the number one employer yeah so so it’s it’s still a big boost for the local
economy but it’s sort of in both those cases it’s comfortable with the number
of jobs that are added in a year or so whereas you know it would have been what
the other markets typically see in five years so it’ll be a more manageable
increase for these markets but it’s still going to be an increase and it’s
going to shape the local markets particularly in the areas around where
Amazon’s going so in the Northern Virginia area they’re talking about the
area between Arlington and Alexandria the excellent they’re calling a new
neighborhood national landing oh really yes and in New York they’re
going to be in Queens and an area known as Long Island City it’s just across the
river from Manhattan yeah so you’re gonna see the biggest effects on the
market in the areas that are nearby so when you say five miles 10 miles yeah so
we studied Seattle and we looked at the biggest effect was in an area within
five miles because of the higher density in these two markets the effect could
even be more compressed in the DC and New York areas the alarm you know that
remains to be seen we see in Seattle as we looked at expansions of Amazon in
Seattle the biggest effects within the first year were within one mile of the
Amazon Shore the campus and then long-term like over the next ten years
we saw large effects within five miles so and in that first year home prices
grew at double the rate of the surrounding area Wow so it’s not a small
effect no it’s not and I know that people in those areas are pretty excited
so good time probably to either be buying or selling in those markets yeah
absolutely like one of the things you mentioned was that the surrounding
markets the sort of runner-up markets also should spill the effect yeah so the
runner-up markets I mean they have the things that Amazon is looking for like a
good housing market a good strong labor economy with lots of educated workers a
nice transportation infrastructure I mean those factors are already in place
that’s gonna make those other markets attractive even even though Animas on
didn’t select them other companies are likely to move in there so I think
they’re gonna be each is fine that’s just what I was thinking is that other
other large companies will use that as sort of a list right I was honest on the
research for them exactly well this was super helpful I have learned a lot about
2019 and for the most part I think it seems pretty good so thanks for joining
us and thank you for joining us with economic insights with Danielle Hale and
Audrey Whittington at please check out some of our other videos you you


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