(English) The Pulse – A Housing Industry Blog

Market Projections

Thursday, February 7, 2019 

From American Land Title Association’s Title News, January 2019 Ed.

As these companies navigate technology options and the positive outlook for the potential of fintech, they’ll be doing so in a tightening market spurred by rising mortgage rates and high house prices.

CoreLogic Chief Economist Frank Nothaft reported that economic growth in the United States only needs to last six more months in order to set the record for the longest economic expansion in the country’s history, based on business cycle dates going back more than 160 years.

Nothaft sees growth starting to slow, but still pushing unemployment to 3.4 percent—marking a 50- year low. As unemployment creeps down, interest rates will continue to rise as the Federal Reserve continues to normalize the level of interest rates and keeps an eye on inflation. CoreLogic expects long-term yields to rise as well, nudging 30-year fixed mortgage rates up to an average of about 5.25 percent by next December—the highest in a decade. This will ultimately affect the housing market and title order volume.

“At the margin, homeowners who currently have lowrate mortgages will be incented to stay in their home rather than sell, keeping the new-listings flow relatively low,” Nothaft said. “The larger monthly payments that come with higher mortgage rates will likely soften buyer demand, leading to less pressure on home prices.”

For mortgage lending, higher rates mean even less refinancing in 2019. The Mortgage Bankers Association (MBA) predicts $1.24 trillion in purchase mortgage originations in 2019. This is a 4.2 percent increase from 2018. In addition, the MBA anticipates refinance originations will continue to trend lower next year, decreasing by 12.4 percent to $395 billion. Overall in 2019, total mortgage originations are forecasted to decrease to $1.63 trillion from $1.64 trillion this year.

“We are seeing some deceleration in the rate of home price growth, but believe this is a healthy pause for the market, as it will allow income growth to catch up to the recent run-up in home values,” said Mike Fratantoni, MBA chief economist and senior vice president for research and industry technology.

He added that housing demand should continue to grow over the forecast horizon, with the pace of home sales held back primarily by the constrained pace of new building. He expects that home purchase originations will increase each year through 2021, and that pace should continue to increase given the wave of millennial buyers beginning to hit the market. Nothaft added that growth in home equity and homeowners deciding to stay put rather than sell, should increase home remodeling expenditures and the origination of HELOCs for home improvement purposes.

“While the macroeconomic and housing market backdrops are, and should remain quite favorable, the mortgage industry continues to be challenged by the drop in origination volume, coupled with significant margin compression,” Fratantoni said. “Lenders of all types and sizes are seeing elevated costs, coupled with intensely competitive pricing, to capture more volume. This in turn is depressing revenues.”