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Rising Rates and Low Affordability to Blame
A combination of rising interest rates and low housing affordability are primarily to blame for the weakness in the housing sector, and mortgage lenders are preparing themselves for what could be another year of hurt in 2019. The Federal Reserve raised interest rates last December and the previous year’s tax cuts that gave the markets a slight boost will be tempered.
“We’re still seeing above-trend GDP growth that is likely to slow as the impact of last year’s tax cuts wears off with higher interest rates,” said Calvin Schnure, the National Association of Real Estate Investment Trusts’ senior vice president of research and economic analysis.
However, at the post-rate hike presser in December, Federal Reserve Chairman Jerome Powell was more dovish in his assessment of more rate hikes in 2019. As opposed to the initial three forecasted for 2019, the central bank now is expecting two rate hikes.
If rates can stay unchanged, this could help spur real estate demand.
“If mortgage rates stay close to these new lower levels, then the hit to affordability from rising rates will be reduced – and the positive impacts of the job market and demographics should flow through to stronger housing demand,” said David Berson, chief economist at Nationwide.
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