Jan 10, 2019

Mortgage Industry Outlook: What’s Ahead for Homebuyers in 2019

What will 2019 bring for the mortgage industry and homebuyers? Tony Weick, leader of Bell Bank’s mortgage division, looks at trends in the economy, rates, credit and housing inventory – and how they will impact the markets and homebuyers in the coming year.

Economic Factors

Looking back at 2018, the economy was driven by the anticipated benefits of tax cuts, low unemployment levels and strong corporate earnings, which had helped drive the stock market to all-time highs. These factors meant the Federal Reserve stayed consistent with previous policies, resulting in four rate hikes during the year.

After kicking off with optimism and momentum, 2018 saw significant change in the health of financial markets as talk turned to the impacts of tariffs, lack of wage growth and an uneasy political environment surrounding the mid-term elections. With the 2018 stock market finishing on a nose dive, economists considered the question of recession (and “bear”) markets – a far cry from what investors were feeling in the middle of the year.

Interest Rates

While Fed Fund rates do not directly impact mortgage rates (which are more closely tied to the 10-year Treasury yield), the average mortgage rate peaked above 5 percent late in the year, reaching its highest level since 2011. Although this change was noticeable to consumers, a 5 or 6 percent rate is historically low compared to rates over the past 40-plus years.

As we look ahead into 2019, there is continued uncertainty about the economy. So many aspects of the economy are up in the air, and they will impact what happens in the coming year. With many geo-political issues in flux, many economists lack the confidence to predict what might happen next. Overall, many believe mortgage rates may experience a certain level of volatility, with a moderate increase overall.

In light of increased rates, we expect refinance activity will continue to be muted, following 2018 trends. Forecasts for the coming year anticipate less than 25 percent refinance share, the lowest level seen in many years. This will likely drive industry volume down slightly overall, continuing to put strain on mortgage-related companies in markets that have less volume to go around. Many companies will see consolidation and shrinking of staffs as they try to right-size to their new volume expectations.

Credit Market

In 2018, the credit markets continued to see some expansion as the industry grappled with the appropriate way to deal with affordability and rising housing prices. The reality of student loan debt and lack of resources for down payment have impacted many potential borrowers.

To promote affordability, there’s been a trend in slight – but appropriate – loosening of credit. We would expect to see a continued emphasis on fine-tuning alternatives for financing to help overcome some of the challenges for first-time homebuyers. These include not only qualifying standards for borrowers, but loosened approval standards for condominiums and manufactured-housing alternatives – two key property types that support many affordable housing initiatives.

Housing Inventory

One of the biggest story lines impacting the mortgage industry in 2018 was the lack of inventory in most markets and price ranges, including a severe shortage in lower- to moderate-priced homes attractive to entry-level or first-time homebuyers. As the year progressed, the industry saw strong appreciation fueled by bidding wars, another factor that caused challenges for homebuyers.

While typically those factors would lead to growth and increased activity in new construction, by most accounts there still weren’t enough new units being built to support the need. Several factors limited construction activity. Increased material costs, lack of available land for development, and a labor shortage have led to sharp increases in the cost to build a home. That has driven new-home costs even higher, ultimately forcing a huge gap in low to moderate price ranges, where new construction units are greatly needed.

Although there doesn’t seem to be an easy solution for many of the challenges limiting new construction activity heading into 2019, the market is by all accounts considered healthy.

We're excited about the future, as there’s much to be optimistic about. Some of the challenges that existed this past year are expected to have less of an impact, and while new challenges are anticipated – such as slightly increasing rates over the next year – we believe the mortgage market will continue to offer very attractive rates, driving a healthy financing environment for consumers. Using a combination of new and improving technology, coupled with good old-fashioned professionalism, competitiveness and customer service, we expect great things in 2019 for Bell Bank Mortgage as we apply our values to the people and markets we serve.

If you are thinking about buying a new home, second home or investment property, give us a call to discuss your options.