In today’s Mortgage Market Update, we’ll not only look at the rate trends and forecasts for this week and next — we’ll also take a look into the year ahead. What does the new year have in store for the real estate and mortgage market? Think higher prices, more millennials and the potential for rates to increase.

2019 Real Estate Market Forecast

The 2019 forecast calls for partly cloudy skies, some sun, and a chance for rain, according to an analysis by the economic team. NAR chief economist, Danielle Hale makes her predictions as we end the current year.

  • While higher prices may become the rule of the day, Hale predicts more inventory than 2018 had to offer. Builders will find it necessary to set higher price points in higher cost areas, while it remains to be seen if middle and entry-level markets will become more affordable.
  • Other factors may make home affordability a challenge, including rising interest rates. (Today’s buyers never experienced the double-digit interest rates of yesteryear, so they are a bit spoiled, after all.)
  • Millennials are no longer the new kids on the block. They ARE the block. In 2019, they will constitute the biggest generational group of homebuyers, with 30 becoming the key age to dive into the market. The oldest group of millennials (late 30s) are already enjoying the rigors as well as the delights of homeownership.
  • It’s unclear how the new tax code will affect the real estate market, according to Hale. She predicts that since taxes don’t get filed until April, it’s anyone’s ball game how the new tax arrangements (standard deduction or itemized) will fare for the average homebuyer and homeowner.

Mortgage Market Update

Before we begin, let’s take a quick moment to review how mortgage rates move.

Conventional overnment (FHA and VA) lenders set their rates based on the pricing of Mortgageand G-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Neutral

Mortgage rates are trending sideways again this morning.  Last week the MBS market worsened by -19bps.  This was enough to move rates or fees slightly higher last week. We saw relatively low rate volatility all week.

This Week’s Rate Forecast: Neutral

Three Things: These are the three areas that have the greatest ability to mortgage rates this week. 1) Central Bank, 2) Geopolitical and 3) Domestic Flavor.

1) Central Bank: Will we get another rate hike this year and what are the Fed projections for the next couple of years? Those are the major questions that the bond market has. On Wednesday at 2 pm ET, we’ll get the latest Fed interest rate decision and policy statement. The market expectations are that the Fed will still raise rates by a 1/4 point, but those expectations have pulled back from 90% 30 days ago, down to 60% now. There are several key moments that could cause MBS to trade in very different directions. First is the rate hike (if it happens) along with their guidance. But then right afterward, we’ll have analyzed their “dot plot” chart which will give us their expectations for future rate hikes. The market expects that the number of rate hikes in 2019 will be reduced but will it show 1,2 or 3? Next up will be the live press conference with Fed Chair Powell, and his answer to live questions could also cause some volatility. But our Fed is not the only game in town this week as we will have important Rate and Policy announcements by the Bank of Japan and the Bank of England.

2) Geopolitical: The big 4 are still sucking up all of the oxygen in the room as the market continues to hedge towards safety in regards to Bexit, France and Italy (and the impact on the ability for the Eurozone to remain intact) and rounding it all out are the two most massive economic (and militarily) forces on earth – U.S. and China trade negotiations. Meanwhile, China will hold its 3-day economic policy-setting meeting where Chinese policymakers will have the occasion to reaffirm their commitment to reform and their measured easing approach while potentially unveiling more fiscal stimulus.

3) Domestic: We get a lot of housing news this week but none of that will impact rates. We will get the 3rd release of the 3rd QTR GDP but that is tired and old data at this point. The market will focus on Friday’s fresh print of PCE as the Fed’s main gauge of inflation.

This Week’s Potential Volatility: High

Mortgage rates will be paying particularly close attention to Wednesday’s rate decision and commentary from the Fed. Assuming the Fed increases rates, which is what the market is expecting, we’ll be paying very close attention to the dot plot chart to determine how many times the Fed expects to increase rates next year. Short of an unexpected geopolitical event, Wednesday’s Fed meeting is what will most likely push rates higher or lower.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.