A shift to a buyer’s market
n Interest rates are rising.
n Affordability is becoming an issue.
n Builders and sellers are making concessions.
n Homes are sitting on market longer.
n Prices are likely to stagnate.
n Purchase and refinance markets
are likely to contract.
Mortgage industry impact
With so many shifting forces at play, what does all of
this mean for the mortgage industry? While the housing market continues to improve for buyers nationally,
it will get increasingly more difficult for originators
and lenders. Gone are the days of homes flying off the
market in 24 hours. Instead, homes will stay on the
market longer and purchase business will slow down.
That’s not to say the market is going to bottom out.
On the contrary, it’s simply beginning to normalize.
With that, the industry will need to realign expectations to manage the shifting landscape.
The mortgage industry is currently over capacity.
Because there will be fewer transactions in 2019, there
will be less work for originators and lenders. This creates a supply and demand issue.
Simply put, there are too many originators and not
enough business to go around. In 2019, there likely will
be a major consolidation — with underperformers
leaving the industry and smaller companies getting
acquired by larger lenders.
With the purchase market normalizing, the mortgage industry also can expect refinancing to come to
a near standstill in 2019. With interest rates expected
to rise nationally, refinancing will drop sharply. Unless
there is a major life event, it won’t make sense for most
homeowners to give up their historically low fixed rate
and refinance their home.
For that reason, expect home equity lines of credit
(HELOCs) to continue to rise in popularity in 2019, as an
alternative to both refinancing and purchasing. Some
current homeowners will simply choose to remodel
their current home, keep their historically low fixed
rate on their first mortgage and stay put.
All in all, 2019 will be a year of realigning expectations — for buyers, sellers, originators, Realtors and
lenders. Affordability will remain a key challenge as
interest rates continue to rise. More houses will sit on
the market for longer periods of time. Creative financing strategies will become more prevalent. And, ultimately, buyers will have more options and leverage as
the market normalizes.
Again, there’s no crystal ball that will paint a perfectly clear picture of next year’s market. There will
always be a risk for the buyer who tries to time the
market correctly. That’s why now, more than ever, is
the time for buyers and sellers to take advantage of
their originators’ and Realtors’ expertise.
The bottom line is this: Most buyers are in a much
better position today than they were even a few months
ago. Expect that trend to continue into 2019. n
housing market, it is a microcosm of what is happening
in similar large metro markets across the country. The
slowdown is real, and it’s already having a profound
effect on the market.
These trends will likely continue into 2019 and originators should be aware of them for themselves and
their clients. While certain metrics may improve for
buyers all across the country, affordability will be a key
hurdle, and the industry will need to adapt quickly as
Buyers, sellers, mortgage originators, Realtors, builders and lenders should all be prepared to reset their
Upper hand for buyers
In recent years, there has been a countrywide mass
migration into cities. Fourteen percent of Americans
will move at least once each year — with educated
millennials migrating in droves to the largest metro
areas, according to a report in USA Today.
While there are many reasons people move to cities —
including amenities like better public transit — there’s
one overwhelming motive that tops them all: jobs. It’s
as a simple as that. People will relocate to where there
is good-paying work. And because there are more
opportunities in larger metro areas, the housing market
will continue to improve in the nation’s biggest cities.
Seattle, for example, has experienced explosive job
growth thanks to a burgeoning tech scene and massive companies like Amazon that continue to flourish
and spark further migration. At one point in 2017, 1,000
people were moving to the Emerald City every week.
Likewise, regions and metro areas already experiencing steady growth continue to attract new residents
who are looking for places to live. If the economy continues to add jobs, expect to see improvement in large
metro areas due to normalized inventory, days on the
market and appreciation in 2019.
While those conditions will improve, rising interest
rates and affordability barriers will throw everyone a
curveball in 2019. Since the beginning of 2018 alone,
interest rates went up by at least 0.75 percentage
points. For homebuyers, this means affordability will
continue to become a greater issue, even as inventory
increases across the markets.
As a general rule, a 1 percentage point increase
in interest takes away approximately 10 percent of a
homebuyer’s buying power. With less buying power,
the pool of potential affordable homes narrows significantly. This can cause one of two things: Potential
homebuyers will stay in their current homes and
choose to remodel, or they will move further outside
the metro area to buy a new homes in more affordable
This, in turn, will continue to fuel a slowdown in the
market. To combat this, builders and sellers in 2019
will need to employ creative strategies to make homes
more affordable and help seal the deal. More sellers
will likely consider offering attractive incentives to get
buyers to consider a home that they wouldn’t otherwise be able to afford, for example.
That’s a strategy many builders are already employ-
ing in the Seattle area. Instead of slashing prices for
buyers, they’re providing larger concessions. Instead
of reducing the home price by 10 percent, the builder-
as-seller will contribute 3 percent of the sales price to
the buyer so they can use that money toward closing
costs and to permanently buy their rate down. As a
result, the interest rate is lower, the monthly principal/
interest payment is less and the home becomes more
Because of these conditions, it is anticipated that
buyers will gain the upper hand in 2019. In fact, if the
country continues to experience job growth and exhibit other signs of a strong national economy, with
inflation in check and no major geo-political events,
next year will likely transition into a buyer’s market. That
means more homes remaining on the market longer,
stagnant price growth and more options for buyers.
While affordability will remain a concern, buyers
will likely hold the cards in 2019. They will have more
options, added flexibility and better leverage during
<< Market continued from Page 84 “All in all, 2019 will be a year
of realigning expectations —
for buyers, sellers, originators,
Realtors and lenders.”