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Projected Trends for the Lending Market in 2019

September 3, 2018


There is definitely an overwhelming positive outlook amongst experts offering their predictions and forecasts for the lending market going into 2019 and beyond. There is a general consensus from sources like Freddie Mac, Zillow, NAR, Trading Economics etc. that the housing market will continue to experience a boom in 2019.

The housing market is expanding thanks to a robust domestic economy that has resulted in many new construction projects and rising prices that are boosting the housing market. This bodes well for all of those people looking to begin the Home Buying Process in major cities, such as Denver, Colorado for example, which has seen phenomenal growth over the last 5 years alone.

There are those that have been constantly beating the drum of a possible housing crash over the last few years, but the opposite has been witnessed in the market, as we see strong buyer demand and home prices continuing to soar. This can be attributed to a low unemployment rate in the country coupled with a high savings rate. Added to this prosperous situation is the arrival of more Millennial buyers. Thanks to a low mortgage rate, the lending market is swelling with the influx of homebuyers’ eager to take advantage of the current economic climate.

Zillow Research revealed that in June 2018, the median home value was $217,300 which is an 8.3% increase from June 2017 and median rent was up 1.3% YoY. The good news continues in that some markets have recovered completely (or almost completely) from their pre-recession peak values. Places like Denver, Colorado have 99.6% of homes returning to or exceeding their pre-2009 values. San Antonio, Texas is at 98.8%, San Jose, California at 98.7%, Nashville, Tennessee at 97.9% and Houston at 97% to name a few. However, major metro areas like Las Vegas, Orlando, Fla, Baltimore, Hartford, Conn, Miami and Riverside, California have a long way to go before they recover all the value lost in the last market crash.

The National Association of Realtors figures show that existing home sales accelerated to 3.8% in 2016 but in 2017 only rose 1.1% to 5.5 million. They forecast that 2018 would show a 1.8% increase of 5.6 million. Currently a home is on the market for as little as 36 days. It is a seller’s market now and that trend will continue strongly into 2019. Prices will continue to rise into the stratosphere.

Chief Economist Lawrence Yun of NAR predicts a 5% rise going into 2019, which puts affordability at a six-year low. This is due to the massive housing shortage in the US with the lowest inventory levels in a generation. This shortage leads to rising prices that make it difficult for homebuyers to find affordability conditions in the market. The house price growth of 5% makes it difficult for first time buyers to enter the market as the inflation and wage growth rate is half that amount. However, that did not deter them with 31% of home sales attributed to the first time homebuyer in 2018.

According to the CoreLogic Home Price Index and Forecast they also see a 5.1% rise in house prices by 2019 continuing the trend of higher sales prices over the last 72 months. Their research shows that many renters want to get out of their rental home and invest in purchasing a home, despite the high prices. However, for every four renters looking to buy, only one homeowner is willing to sell.

Freddie Mac weighed in saying that the Tax Cuts and Jobs Act bill that was signed into law in December lowered the corporate income tax rate. This action should result in a quarter-percentage point boost in GDP growth. The Federal Reserve will be able to increase rates gradually due to a modest inflation increase, which is good news for the lending market going into 2019. This means the housing market will maintain its positive activity –house pricing, housing construction and home sales will be modestly higher. Over the last few years, there has been high levels of homebuyer affordability but with home prices rising by 7% on an annual basis, affordability in 2019 will decline as long as income only increases by 2-3%.

The number of young adults entering the housing market declined after the Great Recession as they moved back into their parent’s home and struggled with large college debt (15% of young adults aged 25-35). These young adults were not feeding the growth of the housing market as the Generations Xers did back in 2000. However, in 2017 there was an 8% increase in first time homebuyers as these young adults slowly started forming their own households.

Hopefully, these young adults will no longer delay buying their first homes and thus drive the market forward by finally starting their own households. There are many reasons for optimism in the lending market going into 2019.