This article was originally published on ETFTrends.com.
A combination of rising interest rates and low housing affordability have hurt real estate in 2018, and mortgage lenders are preparing themselves for what could be another year of hurt in 2019. The Federal Reserve just raised interest rates again last week 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.
At the post-rate hike presser, 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.
However, while the stock market voices its concerns with rising rates as volatility and sell-offs rack the major indexes in December, this outlook could change again.
"We've seen periodic worries that they'd be moving much higher—both short-term with the Fed continuing to remove the stimulus they put in previously and also with the long-term. Earlier in the year, the inflation rates had moved above the Fed's target but for the past six months the core personal consumptions expenditures deflator has been running at about 1.5%," said Schnure. "That means the Fed doesn't need to be aggressive. The current market pricing suggests about 50% chance of just one more increase next year. That's a pretty benign interest rate outlook."
According to National Mortgage News, mortgage originations during the third quarter fell for the fourth straight quarter and that trend is expected to persist. Per the National Mortgage News, “Origination forecasts show a dip to $1.61 trillion in 2019 from $1.63 trillion in 2018, according to Fannie Mae. While a $20 billion decline is small from a percentage point standpoint, it's nevertheless a large enough sum to drive further consolidation among industry firms.”
Despite the rise in interest rates, they still remain historically low. In addition, median home sales are projected to grow at a year-over-year increase of 4.1 percent in 2019, which is down from the 5.4 percent rise in 2018 and 6.7 percent in 2017.
"The interest rates are keeping demand in check, but it's not going to push it down. I don't see the real downside risks people are worried about," Schnure continued.
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