My 2019 Predictions for Mortgage Rates, Home Prices, and Stock Market
“It’s tough to make predictions, especially about the future” – Yogi Berra
And when it comes to predicting Stock Markets, Home Prices, and Mortgage Rates, well, it becomes tougher. All three are impacted by such myriad of geopolitical and economic news and the emotions resulting from them that it’s virtually impossible to foresee all of the variables at the beginning of the year.
With that caveat, let’s dive into where we are at the beginning of the year and where we are heading or at least where I think we are heading.
We are entering 2019 with the following major trends:
- Trade War with China
- Economy Slowing Down
- Stock Market Pullback
- Housing appears to be slowing
- Fed indicating 2 rates hikes and unwind balance sheet
2019 Prediction for Stocks
With a more normal market with the Fed no longer buying Mortgage Bonds and Treasuries, expect the stocks to be choppy and volatile. Fed will most likely not increase the rate in 2019 which will help the stocks (yes, that’s what I am predicting).
My Prediction: Stocks will end up the year with 5%-8% appreciation over year-end 2018 prices.
2019 Prediction for Mortgage Rates
- Inflation is the main driver of rates, and inflation should tick higher with oil prices rebounding and wages increasing. Many states increasing minimum wages.
- Quantitative Tightening – The Fed’s $4 trillion portfolio has shrunk at a monthly rate of $50 billion as the central bank declines to reinvest the proceeds from maturing Treasurys and government-sponsored mortgage bonds. This is a negative for mortgage rates.
- US Government borrowing more in 2019 – With Government Deficit expected to balloon in 201 9, they will have to borrow more by selling more Treasuries and Bonds which will add supply to the market that will need to be absorbed. The more the supply, the higher the yield, the higher the mortgage rates
- Stock stabilization will hurt rates – Stocks and bonds (Mortgage Backed Securities or MBS is a type of bond) usually go in opposite directions. Any favorable news for the stocks could mean bad news for the rates
My Prediction: The 10-year Treasury Note which has a direct co-relation with mortgage rates will trade between 2.75% and 3.25% for most of the year. High tick for 10-year for 2019 is at 3.5%.
30-year Fixed Mortgage Rates in the 4.5% to 5% range for most of the year. Also, worth mentioning that Fannie Mae is forecasting a year-end interest rate of 4.5% while Mortgage Bankers Association is forecasting a 4.8% rate.
2019 Prediction for Real Estate prices
- Negative media – Media loves to spin any bad news for the real estate market making it sound worse. The last quarter of 2018 witnessed exactly that.
- Rocky beginning of the year – Having said that the price growth slowed down considerably during late Fall. There were 3 big reasons for this – Higher Mortgage Rates, Low affordability because of the sharp increase in home prices in the last few years, and fall in stock prices making buyers feel insecure about their financial health.
- Stocks Stabilize – Once stocks stabilize in 2019, it will create a wealth effect and will make home buyers feel more confident about investing in Real Estate.
- Spring market rebound – Expect the Spring market to rebound in most of the markets on the back of better Stock Market and stable Mortgage Rates (which have fallen from the highs of October 2018).
- Demographics still favorable – Even with a minor slow down, a strong job market and the pool of potential home buyers will keep the demand for homes higher than the supply can match.
My Prediction: 3.5% – 4% appreciation nationally which will still create significant wealth. Some strong markets/neighborhoods can expect even higher appreciation levels.
Again, worth mentioning that the National Association of Realtors expects the home appreciation to be at 3.1% for 2019.