Mortgage Rates to Remain Low

As long as everything stays rosy, we’ll be fine……

The housing market has been looking slightly better over the last few month and Freddie Mac July economic report reflects that fact.  They also maintain a fairly rosy picture of the economy as a whole.

They note that the 30-year fixed-rate mortgages (FRM) dipped below 4.0 percent at the end of May and has remained there “amid concerns over trade disputes, a possible economic slowdown, and market anticipation of a Federal Reserve interest rate cut.”  This has caused a spike in mortgage applications for both purchase and refinancing and they predict that low rates, along with a thriving labor market, will help sustain the housing market, not just short term, but for at least the next year and a half.

They have, in fact, revised down their quarterly forecasts for mortgage rates over that period, forecasting an annual rate for the 30-year fixed-rate mortgage of 4.1 percent this year and an even lower 4.0 percent in 2020.

As to other rates, while not predicting a cut in the Federal Funds rate after today’s Federal Open Market Committee (FOMC) meeting, they still expect “cuts” in the second half of the year and project an effective rate of 2.3 percent in the third and fourth quarters with an average of 2.4 percent for the year, unchanged from their earlier forecast. The average next year will be 2.3 percent in 2020 and they see no further FOMC cuts.

The lower rates will turn investor interest towards more lucrative stocks and away from government bonds they say, and forecast that the 10-year Treasury rate will decline to 2.3 percent in 2019 and stay at the same level in 2020. Also, maintaining the spread between government bond yields, they see the 1-year Treasury rate to be 2.2 percent in both 2019 and 2020.

They say the strong homebuilder confidence and lower mortgage rates will lead to a recovery of housing starts and sales from their 2018 slump and that housing starts will end this year at 1.26 million and increase to 1.34 million in 2020.  Home sales will be 6.0 million in 2019 due to the continuing shortage of inventory but will return to 2017 levels of 6.12 million next year.

The recent home price reports have sent mixed signals, but the report’s authors expect home prices to rise by 3.4 percent this year.  They have revised their expectations for next year down to a 2.6 percent appreciation rate.


This collection of opinions has more reach – and more influence – than those of any part-time blogger.  Thankfully, these experts are split on whether the alleged slowdown is temporary, so readers will just be on their merry way in hopes that it will all work out.

It’s what happens when the ivory-tower group chimes in – they attempt to apply the vague old theories to what is happening today, but we don’t know if their principles are still valid.

Gina is the only one who mentioned a specific data point, so let’s put the actual number on it:

First-half sales of detached-homes in San Diego County between $1,000,000 and $2,000,000 were nearly identical year-over-year (1,551 in 2018, and 1,546 in 2019), while sales over $2,000,000 dropped 10% YoY.

Gary probably has the best take on it above, and his day-to-day focus is advising builders.

My thought:

We have a low supply of quality homes mixed with a very affluent demand which is causing every aspect of selling homes via the MLS to be under attack.  Rather than championing (and improving) the traditional system of selling homes, the industry is going to allow off-market sales, ibuyers, commission lawsuits, and Wall Street to sway the outcome.

It will take away some of the free-market influence, which could keep us at an artificially-inflated plateau.

But then again, I’ll stick with what Yogi Berra said,

“It’s tough to make predictions, especially about the future.”

Link to UT Article

Zillow Local Predictions

Here are the histories, and forecasts, of our local Zillow Home-Value-Index for each area:

They are forecasting flat or declining prices in three of our larger areas – and they are also predicting a drop-off in values as the selling season will be getting underway in March, 2020 (which sounds far-fetched).

Their track record hasn’t been that great though.  Here is their Carlsbad prediction in December, 2015, when they expected a 1.9% increase for 2016 – the actual was +7%:

The Carlsbad HVI has risen 19% since the beginning of 2016!

Can we agree on one likelihood? Prices probably won’t be going up much in the next year or two.

2019 Forecast Summary

A summary of the 2019 forecasts – they say mortgage rates will be above 5% this year, and that pricing will continue to go up too. Something needs to give, and the only thing left is the number of sales:

A year ago, several experts predicted the new tax law would cause a slowdown in the housing market.

So far, the limitations on mortgage-interest and property-tax deductions haven’t had a negative impact. Instead, rising mortgage rates and home prices are doing more to put a damper on the market.

Economic uncertainty brought on by global trade tensions, stock market volatility and the government shutdown also isn’t helping. In this environment, potential home buyers can be reluctant to make a large purchase such as a house. The last sustained government shutdown in 2013 saw a slump in home sales.

It is too soon to tell whether the recent decline is a temporary lull or a major pullback.

In their forecasts for 2019, real estate experts anticipate the housing market slowing down, but not stalling, with prices and mortgage rates moderating.

“If mortgage rates trend sideways next year, as we anticipate, and home price appreciation continues to moderate, improving affordability should breathe some life into the housing market,” said Doug G. Duncan, chief economist at Fannie Mae.

Below is a snapshot of what housing experts are forecasting for 2019.


Was There Some Panic in 4Q?

We’re going to start a contest for Padres tickets in the new year, so let’s get a read on how things wrapped up in 2018.

We know that NSDCC sales were down 10%, and the median SP was up 8%.  Sales of detached homes in San Diego County were down 11%, and the median sales price was up 7%.

If sellers were feeling a sense of panic about the market – and prices – we would be seeing more new listings hit the market.

Have there been more listings than usual lately?

NSDCC Listings, 4th Quarter

4th Qtr Listings
Median List Price
Dec. Listings
Median List Price

The other comparisons we’ve done have shown that the 2018 stats have mostly been similar to previous years. But once we have the complete total for new listings, it looks like the 4Q18 number is likely to be at, or above, all of the recent years.  It’s already 12% above last year, and the MLP is actually lower.

There were fewer December listings, but that means the October/November count was higher than ever.  With soggy conditions in place already, did potential sellers this month decide to wait for a 2019 launch?

Will we see a surge of new listings in early 2019?

2019 Forecasts

We are wrapping up another year, and have eyes on 2019!

Here are guesses from the more prominent real estate prognosticators:

  • National Association of Realtors: Sales +1%, prices +3.1%.
  • Sales -2%, Median SP +2.2%.
  • California Association of Realtors: Sales -3.3%, CA Median SP +3.1%.
  • KW: Sales -2%

The opinions are fairly universal throughout the industry.  Sales might be down a little, and prices up a little.

But I’m sticking with -20% for NSDCC sales, which by comparison, sounds catastrophic.  We only had a 10% decline this year and everyone was reaching for the panic button, so if it happens, it will feel uncomfortable for most. But the inventory will be there, it just means more of it won’t be selling.

Here is the data for detached-homes between La Jolla and Carlsbad:

# of Listings
Median LP
# of Sales
Median SP
MSP YoY %chg

Additional inventory is encouraged….up to a point.

In 2006, the inventory ballooned to 6,046 listings, which was 9% higher than the previous year’s count. The surge in new listings set buyers back on the their heels, and sales plunged 13% in 2006 compared to 2005.

The 2018 counts above are today’s numbers, so a few more will be added.  Using these numbers, listings are up 3% YoY, and sales are down 11%, YoY.

The median sales price is +8% YoY, but that’s for the whole year.  We saw the October Case-Shiller Index be up only 3% YoY, so pricing is decelerating.

The stock market crashed 635 points on Monday, only to go up 1,086 yesterday – and yet the 30-year jumbo rate hasn’t budged (still at 4.41%).

Pricing might drop a little, but the sales go first, so I think we won’t see much change in the NSDCC median sales price in 2019.

Remember the Struggle?

The Chargers – still euphoric from having 7 of their players make the Pro Bowl – lost badly last night, and that should doom the rest of their Cinderella season.  They will probably end up in Pittsburgh or New England for their playoff game, and have a premature ending to their Super Bowl run – and eliminate a potential distraction for our early-2019 housing market.

The stock market should level out early in the new year, after causing mortgage rates to dip into the low-4s, which will be good news too.

All we need is some well-priced inventory, and off we go!

Except for one thing – will sellers and agents remember the Struggle of 2018?

The holidays always provide a nice distraction for all, and help to put some distance between our previously sluggish market conditions and the clean slate of a new year.

We can predict the usual occurrence:

  1. The Top 30% of listings will have no trouble selling.  They are in excellent condition and are priced fairly.
  2. The Bottom 40% of listings won’t sell.  It happens like that every year.

It’s the Middle 30% that will determine the fate of the selling season of 2019.

The jitters in the stock market should translate over to real estate, and nervous home-sellers will be listing earlier than ever.  We’ll probably have a new record high for January listings – which should set buyers back on their heels even more as they wonder who is going to go first.

The Top 30% of listings will be fine and orderly.  It will be how the Middle 30% decide their pricing – are sellers nervous enough that they will resist adding a little cushion to their list price?

No way – the sluggishness of 2018 will be a distant memory, if remembered at all. The higher comps of 6-18 months ago will be used to justify retail-plus pricing, just like always.

There will be mixed messages because those in the Top 30% that sell briskly will make potential sellers think everything is fine again.  But if we see unsold listings are starting to pile up by May/June, it will become obvious to buyers that the Middle 30% needs to adjust their pricing radically if they want to sell.

Sellers should get it done early, before it becomes obvious. The sluggishness started in July this year, and it will probably be back earlier in 2019.

Get Good Help!

Fed Hike?

A pause in the Fed hikes was looking good.

First, the WSJ posted an editorial on Sunday – a snippet:

If you think your job is tough, consider Federal Reserve Chairman Jerome Powell. He’s signaled for months that the Fed will raise interest rates again this week, but economic and financial signals suggest he should pause. Meanwhile, Donald J. Trump is beating him up almost daily not to raise rates.

What to do? The right answer is to ignore the politics, inside and outside the Fed, and follow the signals that suggest a prudent pause in raising rates at this week’s Open Market Committee (FOMC) meeting. Get the monetary policy that best serves the economy, and the politics will work itself out. Get the policy wrong, and Mr. Trump will be the least of Mr. Powell’s political worries.

Josh agreed in his tweet above, and it looked like we had a shot!

Trump could have just let it go…..but noooo, he had to tweet one more time:

In case the Fed is looking around for evidence, consider our recent home sales:

End-of-Year Detached-Home Sales and Pricing

% change
NSDCC # of Sales, 10/1 – 12/15
NSDCC Median SP, 10/1 – 12/15
SD County # of Sales, 10/1 – 12/15
SD County Median SP, 10/1 – 12/15

The Fed is going to be tempted to make their rate decision based on politics, and show Trump who the boss is. Median pricing is like politics – it makes you want to make decisions based on less-relevant data.

Keep your eyes on sales – they are the precursor of what’s ahead.

Even if the Fed skips this rate hike, we are still going to see sales plummet next year.  They could help make it a softer plummet though!

2019 Market Outlook

Above is the summary of yesterday’s housing and economic outlook sponsored by First American Title.  Click here for the full report:

SoCal Outlook Dec 2018

Let’s mention those who will be making the market in 2019:

  1. Those with the least amount of experience and education.
  2. Those who don’t own a home here yet.

People in these two categories aren’t hampered by the over-analysis that comes with owning a home here currently.  Those who already own a home in San Diego have paid less, and have a lower mortgage rate.  We are trying to make sense of giving that up, and paying more!

It’s a burden that thwarts most attempts to move by current homeowners.

But those who don’t study it too hard, or don’t already own a home will forge ahead.  They have already decided that buying a home make sense in this environment, and have their own personal consequences if they don’t buy.  They aren’t going to be talked out of it either.

Figure out how many people are in that group, and you can predict the future.

Here are the categories:

  • First-timers
  • Down-sizers
  • Up-sizers with strong needs
  • Incomers from out-of-county/state/country
  • Affluent people

Everyone else will enjoy their comfortable spot on the fence and wait-and-see what these folks will do.  Let’s acknowledge though that people in these five groups aren’t tethered with the same restraints as the rest of us – it’s just a matter of how many people are in these groups.

How many?  My guess is 80% of those who bought in 2018.

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