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What You Need to Know About the 2019 Mortgage Market

2016 mortgage market

Will 2019 be the year of the homebuyer, or will it remain a seller’s market? Will interest rates continue to go up in 2019, making home buying unaffordable for more Americans and refinancing less worthwhile? Is there another housing market bubble about to burst, causing home values to plummet?

This year promises to be an interesting year for the mortgage market. With interest rates at their highest point in years, and prices still rising despite a slight slowdown, there are lot of things to consider about homeownership heading into 2019.

Don’t expect a housing bubble to burst in 2019

Post-2008, many Americans have some concerns about the potential for another housing bubble. According to LendingTree chief economist Tendayi Kapfidze, that’s not very likely this coming year.

“We will probably get a slowdown, but not the bursting of any bubble,” Kapfidze said. “We haven’t had the type of excess we had in 2006, and price-to-income ratios are not out-of-sync like they were then.”

In 2007, at the peak of the housing bubble, the median prices of single-family homes in much of the United States cost more than five times the median annual household income. That means in places where the median income was $60,000, houses cost more than $300,000.

In July of 2018, the price-to-income ratio hit 4.41%, according to the Case Shiller home price to income ratio. That might raise eyebrows, but there are two big differences: Unemployment is lower, and incomes are on the rise. “The arbiter of stability in the housing market is the labor market, and the labor market is very strong,” Kapfidze said.

One other big difference from the 2007 bubble? The mortgage products being offered are much more heavily regulated. The Consumer Financial Protection Bureau created the “qualified mortgage rule” for lenders which requires lenders to verify that a consumer has the ability to repay the loan, among other things.

Although alternative mortgage lending options are starting to appear, they require higher down payments than the programs offered in 2007, and lenders still have to demonstrate that borrowers have the ability to repay the loans to their investors.

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The balance between a seller’s and buyer’s market may be shifting

In a seller’s market, there’s usually a low level of inventory — meaning there just aren’t a lot of houses available to purchase. The easiest way to tell if you are in a seller’s market is to track how long houses stay for sale in your neighborhood. If “sold” signs show up soon after the “for sale” goes up on a neighbor’s house, chances are you are in a seller’s market.

The past four years, for the most part, have been a seller’s market. Prices have increased, and it’s not uncommon to see bidding wars for houses in many areas. To compete, buyers have to bid at and often above the asking price.

The signs of a transition to a buyer’s market are pretty easy: Start looking for more “for sale” signs that stay in front of houses longer. Also watch to see the direction that interest rates are headed. As rates head higher, there are less qualified buyers, and that means sellers have a harder time justifying high sales prices.

When sellers start to price their homes lower, you may have more of a chance to offer a price below the asking price, and even ask them to pay some of your closing costs.

There are some preliminary signs that the tide may be turning on the seller’s market conditions. The total number of existing home sales dropped for six months straight from April to September in 2018, according to the National Association of Realtors. If you’ve been trying to time the market to decide when to sell, you might not want to wait too much longer, as higher rates and a slow down in price increases may give you less control over getting top dollar for your home.

If you currently own a house you are considering selling, watch the same signs as buyers. If those “for sale” signs are starting to linger in your neighborhood, it might be time to get one in front of your house sooner rather than later.

The equity in your house may be even higher in 2019

One of the positive things about rising home prices is that if you are a homeowner, you may have more home equity than in previous years. The Federal Housing Finance Agency reported that house prices rose 6.5% from the second quarter of 2017 to the second quarter of 2018.

This makes home equity loans, home equity lines of credit and cash-out refinancing more attractive. There are a number of financial goals you can accomplish by accessing the equity in your home, including consolidating high interest rate credit cards and making improvements to your home to increase the value further.

Interest rates are higher for home equity loans, and you’ll pay closing costs to access the equity. Home equity loans are installment loans, which means you’ll have a set monthly payment for the life of the loan. Home equity lines of credit, also known as HELOCs, work much like credit cards, allowing you to charge them and pay them off, making payments only on the amount charged. The drawback is that they feature variable rates that will make your monthly payment less predictable.

Alternative mortgage credit programs will be offered more frequently

Since the housing crisis over a decade ago, overall mortgage credit availability has gradually increased. Conforming loan credit availability has steadily risen, while government loan programs like FHA and VA have seen a slight decrease in 2018.

The slight tightening of government loan programs makes the alternative mortgage credit market ripe for expansion in 2019. Most commonly referred to within the mortgage industry under the program names “nonprime,” and “non-QM”, alternative mortgage credit programs offer customers with recent foreclosures and bankruptcies the option to purchase a home, in some case providing bank statements for income qualification instead of tax returns.

The loans require much higher down payments of usually at least 10%, and very often 20% or more, with rates significantly higher than the current market. Be sure you understand all the terms of these loans, and have explored all other opportunities before applying for a an alternative credit loan.

Will affordability improve in 2019?

Housing affordability has been the subject of a lot of controversy as rates and home prices have continued to rise. Earlier in the year, builders had to contend with tariffs on lumber that hurt their profits, making it harder to build homes at competitive prices. Lumber prices have since dropped, but one of the by-products of the higher cost of newly built homes is less housing options for first-time homebuyers.

This has made it especially hard for millennial to buy homes. Despite recent upticks in homeownership, millennial are eight percent less likely to own a home than baby boomers. The biggest factor affecting their decision to buy is housing cost. One answer to this problem is expanding options for homebuyers to consider manufactured housing options.

According to the U.S. Census Bureau Manufactured Housing Survey and the US Department of Housing and Urban Development Survey of Construction, the 2017 average cost of a manufactured home, excluding the land value, was $82,171, versus a new site-built home at $289,078.

Fannie Mae and Freddie Mac have addressed this issue with the introduction of a number of competitive financing programs that will allow for minimum down payments for financing of existing and new manufactured homes.

The bigger picture for the 2019 mortgage market

Interest rates and prices will continue to have the biggest impact on the mortgage market in 2019. If you have thought about selling or getting some of the equity out of your house, it makes sense to do that sooner rather than later. Home values have had a nice run for several years, but like any asset, the price increases usually level off at some point.

Buying will require research and patience, and an honest look at your current financial situation. It’s not likely that prices will drop substantially, but real estate is always local, so keep an eye on “for sale” and “sold” signs to see what’s going on with values in the neighborhood you live in or want to live in.

Alternative mortgage credit options are already being offered and many more mortgage companies will be offering them into 2019. These should be looked at as temporary loan programs to get you into a property sooner than later, with the idea that you will be able to refinance within a year or two once your credit or income profile has changed to allow you to get a government or conventional loan at better rates and terms.

If you feel like you’re priced out of the market, and haven’t explored the latest options in manufactured or modular housing, now is the time to take a second look. Financing options for these types of properties are the most competitive they’ve been in a decade.

 

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