Mortgage Rate Forecast

Geopolitical uncertainty is causing mortgage rates to drop. Windermere Chief Economist, Matthew Gardner, explains why this is and what you can expect to see mortgage rates do in the coming year.

 

Over the past few months we’ve seen a fairly significant drop in mortgage rates that has been essentially driven by geopolitical uncertainty – mainly caused by the trade war with China and ongoing discussions over tariffs with Mexico.

Now, mortgage rates are based on yields on 10-Year treasuries, and the interest rate on bonds tends to drop during times of economic uncertainty.  When this occurs, mortgage rates also drop.

My current forecast model predicts that average 30-year mortgage rates will end 2019 at around 4.4%, and by the end of 2020 I expect to see the average 30-year rate just modestly higher at 4.6%.

Posted on July 4, 2019 at 8:00 am
Jon Holsten | Category: Buying, Housing Trends | Tagged , , , , , ,

Colorado Real Estate Market Update

Posted in Colorado Real Estate Market Update by Matthew Gardner, Chief Economist, Windermere Real Estate 

 

The following analysis of the Metro Denver & Northern Colorado real estate market (which now includes Clear Creek, Gilpin, and Park counties) is provided by Windermere Real Estate Chief Economist Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact your Windermere agent.

 

ECONOMIC OVERVIEW

Colorado’s economy continues to grow with the addition of 44,800 new non-agricultural jobs over the past 12 months. This represents a reasonable growth rate of 1.7%. As stated in last quarter’s Gardner Report, we continue to see a modest slowdown in employment gains, but that’s to be expected at this stage of the business cycle. I predict that employment growth in Colorado will pick back up as we move through the year, adding a total of 70,000 new jobs in 2019, which represents a growth rate of 2.6%.

In February, the state unemployment rate was 3.7%, up from 2.9% a year ago. The increase is essentially due to labor force growth, which rose by more than 84,000 people over the past year. On a seasonally adjusted basis, unemployment rates in all the markets contained in this report haven’t moved much in the past year, but Boulder saw a modest drop (2.7%), and the balance of the state either remained at the same level as a year ago or rose very modestly.

 

HOME SALES

  • In the first quarter of 2019, 11,164 homes sold — a drop of 3% compared to the first quarter of 2018 and down 13.5% from the fourth quarter of last year. Pending sales in the quarter were a mixed bag. Five counties saw an increase, but five showed signs of slowing.
  • The only market that had sales growth was Adams, which rose 4.9%. The rest of the counties contained in this report saw sales decline, with a significant drop in the small Park County area.
  • I believe the drop in the number of home sales is partially due to the significant increase in listings (+45.6%), which has given would-be home buyers more choice and less need to act quickly.
  • As mentioned above, inventory growth in the quarter was significant, but I continue to believe that the market will see sales rise. I expect the second half of the year to perform better than the first.

 

 

HOME PRICES

  • Home prices continue to trend higher, but the rate of growth is tapering. The average home price in the region rose just 2.1% year-over-year to $456,243. Home prices were .3% higher than in the fourth quarter of 2018.
  • I anticipate that the drop in interest rates early in the year will likely get more buyers off the fence and this will allow prices to rise.
  • Appreciation was again strongest in Park County, where prices rose 21.9%. We still attribute this rapid increase to it being a small market. Only Clear Creek County experienced a drop in average home price. Similar to Park County, this is due to it being a very small market, making it more prone to significant swings.
  • Affordability remains an issue in many Colorado markets but that may be offset by the drop in interest rates.

 

 

DAYS ON MARKET

  • The average number of days it took to sell a home in Colorado rose five days compared to the first quarter of 2018.
  • The amount of time it took to sell a home dropped in two counties — Gilpin and Park — compared to the first quarter of 2018. The rest of the counties in this report saw days-on-market rise modestly with the exception of the small Clear Creek market, which rose by 26 days.
  • In the first quarter of 2019, it took an average of 42 days to sell a home in the region, an increase of four days compared to the final quarter of 2018.
  • Job growth drives housing demand, but buyers are faced with more choice and are far less frantic than they were over the past few years. That said, I anticipate the late spring will bring more activity and sales.

 

 

CONCLUSIONS

This speedometer reflects the state of the region’s real estate market using housing inventory, price gains, home sales, interest rates, and larger economic factors.

For the first quarter of 2019, I have moved the needle a little more in favor of buyers. I am watching listing activity closely to see if we get any major bumps above the traditional increase because that may further slow home price growth; however, the trend for 2019 will continue towards a more balanced market.

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.

In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.

Posted on June 21, 2019 at 8:00 am
Jon Holsten | Category: Buying, Fort Collins Real Estate, Greeley Real Estate, Homes for Sale, Housing Trends, Loveland Real Estate, Northern Colorado Real Estate, Selling, Timnath Real Estate, Wellington Real Estate, Windermere Real Estate, Windsor Real Estate | Tagged , , , , , , , ,

What You Need to Know About the US Luxury Housing Market

Luxury homes sales across the U.S. continue to perform strongly, but I’m noticing some headwinds starting to appear that are worthy of a closer look.

It’s often thought that luxury real estate runs totally independent of the overall market, and while this is true in some respects, there are definitely correlations between high-end housing and the rest of the market.

The first similarity is that the luxury market has suffered from some the same inventory constraints that are almost endemic across all price points in the U.S. But, similar to the overall market, we are starting to see a rise in inventory, which should be good news for real estate agents and luxury home buyers alike.

Impact of rising inventory 

This increase in the number of luxury homes for sale has started to have a tapering effect on price growth, which again, is similar to what we’re seeing in the rest of the market. But as real estate professionals, we know full well that all housing is local and some markets are performing far better than others.

For example, luxury markets in Maui, Northern California, Colorado, and Sarasota, Florida, are all experiencing substantial price growth, while there are noticeable slowdowns in many parts of New York and New Jersey. Even Queens and Jersey City, which have continued to benefit from high demand, have seen price growth stall recently, indicating that those markets could be losing some steam.

Why the slowdown? 

The slowing of luxury sales in certain areas around the country piqued my interest, so I decided to explore why this is happening. The first thing I noticed is that cities with high property taxes are fairly prevalent on the list of slowing markets; this includes cities like Boston, Austin, New York City, and Chicago. It is likely that the federal tax changes limiting the deductibility of property taxes are the culprit for such slowdowns in these areas.

Something else that has undoubtedly impacted luxury home sales in markets, such as New York City and Seattle, is the significant decline in foreign buyers from countries like China and Canada. According to the National Association of Realtors, the number of purchases by international buyers fell by 21 percent between 2017 and 2018, amounting to a drop of $32 billion – the largest decline on record.  Foreign buyers spent $121 billion on 266,754 properties, making up 8 percent of the buyers of existing (previously lived in) homes.

My research tells me that foreign home buyers are pulling back amid political uncertainty in the U.S. Ongoing concerns about a potential trade war, combined with rhetoric against foreigners, have done their part to dampen some of the enthusiasm to invest in U.S. housing. Also playing a role in this slowdown is the Chinese Central Government which has started placing tighter controls on the ability to spend money outside of mainland China. And finally, rising home prices and a strong U.S. dollar are likely two other key factors behind the tumbling interest in luxury real estate from overseas buyers.

So how do I see the luxury market performing in 2019?

Luxury real estate sales in markets like Boston, Clearwater, Austin, and Alexandria, Virginia will continue to slow down for the reasons stated earlier, but in other parts of the country, home buyers will provide the demand needed to keep the market plugging along at a healthy pace.

The changes affecting mortgage interest deductions and property taxes will also continue to impact the luxury market in certain areas, but this will, to a degree, be offset by other tax changes that favor high-income households and increase their disposable income. Something else that will help keep the luxury real estate market afloat in the coming year is jumbo mortgage interest rates which remain remarkably competitive compared to historic standards.

On a whole, high-end real estate sales have been strong over the past few years. While I am predicting somewhat of a slowdown next year given the headwinds discussed earlier, 2019 will be remembered as a year where balance started to return to the luxury housing market.

 

Mr. Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. 

Posted on April 17, 2019 at 8:00 am
Jon Holsten | Category: Buying, Homes for Sale, Housing Trends, Northern Colorado Real Estate, Windermere Real Estate | Tagged , , , , , ,

2019 Economic and Housing Forecast

What a year it has been for both the U.S. economy and the national housing market. After several years of above-average economic and home price growth, 2018 marked the start of a slowdown in the residential real estate market. As the year comes to a close, it’s time for me to dust off my crystal ball to see what we can expect in 2019.

The U.S. Economy

Despite the turbulence that the ongoing trade wars with China are causing, I still expect the U.S. economy to have one more year of relatively solid growth before we likely enter a recession in 2020. Yes, it’s the dreaded “R” word, but before you panic, there are some things to bear in mind.

Firstly, any cyclical downturn will not be driven by housing.  Although it is almost impossible to predict exactly what will be the “straw that breaks the camel’s back”, I believe it will likely be caused by one of the following three things: an ongoing trade war, the Federal Reserve raising interest rates too quickly, or excessive corporate debt levels. That said, we still have another year of solid growth ahead of us, so I think it’s more important to focus on 2019 for now.

The U.S. Housing Market

Existing Home Sales

This paper is being written well before the year-end numbers come out, but I expect 2018 home sales will be about 3.5% lower than the prior year. Sales started to slow last spring as we breached affordability limits and more homes came on the market.  In 2019, I anticipate that home sales will rebound modestly and rise by 1.9% to a little over 5.4 million units.

Existing Home Prices

We will likely end 2018 with a median home price of about $260,000 – up 5.4% from 2017.  In 2019 I expect prices to continue rising, but at a slower rate as we move toward a more balanced housing market. I’m forecasting the median home price to increase by 4.4% as rising mortgage rates continue to act as a headwind to home price growth.

New Home Sales

In a somewhat similar manner to existing home sales, new home sales started to slow in the spring of 2018, but the overall trend has been positive since 2011. I expect that to continue in 2019 with sales increasing by 6.9% to 695,000 units – the highest level seen since 2007.

That being said, the level of new construction remains well below the long-term average. Builders continue to struggle with land, labor, and material costs, and this is an issue that is not likely to be solved in 2019. Furthermore, these constraints are forcing developers to primarily build higher-priced homes, which does little to meet the substantial demand by first-time buyers.

Mortgage Rates

In last year’s forecast, I suggested that 5% interest rates would be a 2019 story, not a 2018 story. This prediction has proven accurate with the average 30-year conforming rates measured at 4.87% in November, and highly unlikely to breach the 5% barrier before the end of the year.

In 2019, I expect interest rates to continue trending higher, but we may see periods of modest contraction or levelling.  We will likely end the year with the 30-year fixed rate at around 5.7%, which means that 6% interest rates are more apt to be a 2020 story.

I also believe that non-conforming (or jumbo) rates will remain remarkably competitive. Banks appear to be comfortable with the risk and ultimately, the return, that this product offers, so expect jumbo loan yields to track conforming loans quite closely.

Conclusions

There are still voices out there that seem to suggest the housing market is headed for calamity and that another housing bubble is forming, or in some cases, is already deflating.  In all the data that I review, I just don’t see this happening. Credit quality for new mortgage holders remains very high and the median down payment (as a percentage of home price) is at its highest level since 2004.

That is not to say that there aren’t several markets around the country that are overpriced, but just because a market is overvalued, does not mean that a bubble is in place. It simply means that forward price growth in these markets will be lower to allow income levels to rise sufficiently.

Finally, if there is a big story for 2019, I believe it will be the ongoing resurgence of first-time buyers. While these buyers face challenges regarding student debt and the ability to save for a down payment, they are definitely on the comeback and likely to purchase more homes next year than any other buyer demographic.

Originally published on Inman News.

 

What Our Expert Thinks

Here’s what our Chief Economist, Matthew Gardner, thinks about the 2019 U.S. Housing Market. He is regarded as one of the Country’s experts on real estate and is frequently quoted by leading industry publications.

 

• Existing Home Sales up 1.9% to 5.4 million units
• Home Prices up 4.4%
• New Home Sales up 6.9% to 695,000 (the highest since 2007)

 

If you want to see all of Matthew’s predictions including where interest rates are headed, get signed up for our annual Forecast. Click the link below!

Posted on January 31, 2019 at 7:59 pm
Jon Holsten | Category: Fort Collins Real Estate, Housing Trends, Northern Colorado Real Estate | Tagged , , , , , , , ,