Home Price and Mortgage Rate Forecasts
According to the Federal Reserve’s Flow of Funds report that was released This Week in Real Estate the home equity percentage has reached its highest level since the second quarter of 2002. Below are a few highlights from the second week of March that influence our business:
Equity Rises for U.S. Homeowners. The home equity percentage reached a level that had not been seen since the second quarter of 2002. As of the fourth quarter of 2018, the equity percentage, on a non-seasonally-adjusted basis, stood at 60.1%. At the end of 2018, the market value of all owner-occupied real estate totaled $25.9 trillion, growing by 5.3% from the start of the year, and outstanding home mortgage debt totaled $10.3 trillion, growing by a lesser percentage of 2.6%. The trend in the market value of all owner-occupied real estate mirrors that of the Case-Shiller U.S. National Home Price Index. Rising residential real estate prices are a good proxy for the increasing market value of homes in the U.S. As of the fourth quarter of 2018, homeowners collectively held 15.4 million home equity lines of credit, totaling a balance of about $0.4 trillion.
Home Price and Mortgage Rate Forecasts Suggest Smaller Gains in the Mortgage Payments Homebuyers Will Face This Year. While the nation’s median home sale price rose about 4 percent year over year in December 2018, the principal-and-interest mortgage payment on that median-priced home increased nearly three times as much because mortgage rates rose by more than half a percentage point over that period. However, some forecasts for home prices and mortgage rates indicate mortgage payments will rise at a much slower pace this year, which could help stoke home sales this spring. One way to measure the impact of inflation, mortgage rates and home prices on affordability over time is to use what we call the “typical mortgage payment.” It’s a mortgage-rate-adjusted monthly payment based on each month’s U.S. median home sale price. It is calculated using Freddie Mac’s average rate on a 30-year fixed-rate mortgage with a 20 percent down payment. It does not include taxes or insurance. The typical mortgage payment is a good proxy for affordability because it shows the monthly amount that a borrower would have to qualify for to get a mortgage to buy the median-priced U.S. home.
Looking ahead, the CoreLogic Home Price Index Forecast suggests a 4.5 percent annual gain in home prices by this December, while the average among six rate forecasts indicates a small increase – 0.1 percentage points – in mortgage rates this December compared with December 2018. The CoreLogic HPI Forecast suggests the median sale price will rise 2.1 percent in real, or inflation-adjusted, terms over the year ending December 2019 (or 4.5 percent in nominal, or not-inflation-adjusted, terms). Based on that projection, coupled with the aforementioned consensus mortgage rate forecast, the real typical monthly mortgage payment would rise from $904 in December 2018 to $935 by December 2019, a 3.5 percent year-over-year gain , down from a 9.9 percent gain a year earlier. In nominal terms the typical mortgage payment’s year-over-year increase in December 2019 would be 6.0 percent, or about half the 12.1 percent gain a year earlier.
MBA Has a More Upbeat View on New Home Sales. Even though the January Census Bureau report on new home sales published on Thursday wasn’t all that encouraging for the spring market, the Mortgage Bankers Association (MBA) is predicting more upbeat news for February. The Association’s Builder Application Survey (BAS) shows a 6 percent increase in new home purchase applications from the previous month and a 3-point gain from February 2018. Those numbers are not seasonally adjusted. “The housing market remains poised for a strong spring, with last month’s increase in builder applications likely leading to a healthy 7 percent year-over-year rise in new home sales,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “We are starting to see signs of more new residential construction and inventory, which increases buying opportunities for the many home shoppers who have been hampered by the ongoing lack of supply.” Added Kan, “Slowing home-price growth, combined with stronger wage gains and lower mortgage rates, is translating to improving affordability conditions for spring buyers.”