Zillow’s 2019 predictions indicated that rising mortgage rates and an increasing demand for rentals set the stage for the 2019 housing market, as even current homeowners start to feel locked into their mortgage rates.
Despite steady rise during the past two years, mortgage rates remained lower than they were during the recession and below average, given the current level of economic growth. The report stated this trend will change in 2019 as the 30-year fixed rate mortgage reaches 5.8 percent. It also noted that affordability will take a hit, making homeownership difficult for many. Currently, rising mortgage payments outpace the home-value gains—a phenomenon that may encourage homeowners to stay put as they hold on to low mortgage rates and discourage first-time homebuyers— according to Zillow.
As higher rates hinder affordability, aspiring homeowners will continue renting, as a result of which the slight drops in rent, in the recent past, will reverse and turn positive again, the report revealed. However, the continued steady investment in apartment construction will prevent rents from drastically surging above income growth. The report also noted that in the third quarter of 2018, the U.S. median rent cost 28.2 percent of the U.S. median income – considerably higher than the 25.8 percent renters paid historically.
Zillow expects an increase in the disconnect between urban jobs and suburban residents to continue in 2019, and contribute to longer, more crowded commutes. This will affect those who have long commutes to live within their means as most jobs are confined to urban areas, and affording a home in urban markets. For example, a home in Boston is valued 303 percent more per square foot than a typical outlying home, while the premium for homes in central Washington, D.C., compared to outlying areas is 218 percent per square foot, the report noted.
Pointing out the areas that lost Amazon’s headquarters bids to suburban New York and Washington, D.C., the report said that Atlanta, a former Amazon HQ2 contender, has seen some action despite it being passed over by the prime vendor. A smaller Seattle-based company named Convoy is expected to open its East Coast office in the metro. There is also a possibility that Norfolk Southern may relocate its headquarters there.
In the wake of deadly fires that tore into California, builders and developers will focus on preventative and/or protected building materials and designs, according to Zillow. Building costs are surging, and insurers are apprehensive offering policies in danger zones leading to slower and costlier rebuilding. Zillow’s projections for homes inundated by rising sea levels and storm surges over the course of a typical 30-year mortgage begun in 2020 are not encouraging.
In October, home values were up 7.7 percent from a year earlier, to a U.S. median of $221,500. One mitigating effect to rising mortgage rates will be slower home value growth, Zillow indicated. Forecasting a growth of 6.4 percent from October 2018 to October 2019; a Zillow survey of housing experts and economists anticipates a 3.79 percent increase in home values for 2019. Both forecasts indicate cooling from red-hot growth of 8 percent in March of this year.