A new round of mortgage industry forecasts and projections suggest that higher interest rates could lead to a purchase-dominated mortgage market in 2019. Meanwhile, mortgage qualification standards have eased, and this could bring more borrowers into the market next year.
Three Mortgage Trends We Could See in 2019
As we move into the holiday season, many home buyers are looking ahead to 2019. And many of them share the same questions: What will mortgage rates do in 2019? Will it be a good time to buy or refinance a home? Here are some recent trends that could carry over into next year.
Prediction #1: Thirty-year mortgage rates could hover around 5% in 2019.
At the start of 2018, the average rate for a 30-year fixed mortgage was 3.95%. That’s based on the long-running survey conducted by Freddie Mac. As of November 8, that average had risen to 4.94%. So today’s mortgage rates are about one full percent higher than they were at the beginning of this year.
As for forecasts and projections, some analysts expect 30-year loan rates to hover around 5% for much of 2019. The Mortgage Bankers Association (MBA) recently predicted that the average rate for a 30-year fixed home loan would start 2019 at 5.0%, and then hover around 5.1% for the rest of next year.
The economic research team at Freddie Mac offered a similar prediction for mortgage rates in 2019. In an October 2018 report, the group stated:
“We anticipate that the 30-year fixed-rate mortgage will average 4.5 percent in 2018, rising to 5.1 percent in 2019 and 5.6 percent in 2020.”
So their long-range outlook mirrors the forecast issued by the MBA. Analysts from both organizations expect long-term home loan rates to hover in the low 5% range for much of next year.
Did you know? While there are different types of home loans, the 30-year fixed-rate mortgage is by far the most popular financing among borrowers today. That’s why you see it mentioned so frequently within news reports, forecasts, etc.
The key takeaway here is that there appears to be some consensus among experts that mortgage rates will remain fairly stable throughout 2019.
Prediction #2: Purchase loans will dominate the market, as refinancing activity declines.
When mortgage rates trend upward, refinancing activity tends to decline. And we’ve already talked about the steady rise in rates that has occurred during 2018.
As a result of that trend, the mortgage market in 2019 will likely be dominated by purchase loans (i.e., those used by home buyers). Mortgage refinancing activity, on the other hand, will likely decline through the end of 2018 and into 2019.
According to a November 2018 press release from the analytics firm Black Knight, almost 1.9 million homeowners across the country still “have an interest rate incentive to refinance” their homes. But the window has closed for many more. The company’s data revealed that roughly 6.5 million homeowners “have now missed their opportunity to refinance their mortgages due to rising rates.”
Bottom line: Some homeowners in the U.S. could still benefit from refinancing. But if rates continue to rise, that number will shrink. In 2019, the mortgage market will probably consist primarily of purchase loans, with a smaller percentage of refinance loans.
Related: 4 things the housing market might do
Prediction #3: Mortgage lending standards will be more relaxed, compared to previous years.
Mortgage lending criteria have eased over the past year, and this could have an impact on the 2019 mortgage market as well. The short version is that it’s generally easier to qualify for a home loan today, compared to previous years.
There are several reasons for this. For one thing, Freddie Mac and Fannie Mae have eased the criteria they use when purchasing mortgage loans from lenders. They’re allowing higher debt-to-income ratios, and higher loan-to-value ratios. This means borrowers today can qualify for a mortgage loan with a higher level of household debt, and with less money down. Generally speaking.
An October 2018 report by the property analytics company CoreLogic stated:
“Mortgage credit underwriting eased for both conventional and Federal Housing Administration (FHA) home-purchase loans during the Q2 2018 compared with a year earlier … In the last few years, GSEs have expanded their credit box to creditworthy borrowers by increasing the maximum debt-to-income (DTI) and loan-to-value (LTV) ratios.”
Note: The GSEs in the above quote are the two government-sponsored enterprises, Freddie Mac and Fannie Mae. Their purchasing criteria tend to “trickle down” to the primary mortgage market, where they affect borrowers.
We recently reported that mortgage loan denial rates have declined steadily over the last seven years or so. This is partly due to an ongoing “easing” trend within the industry.
To be honest, it’s fairly easy to “forecast” this particular trend because it’s already happening. And it’s something that will probably carry over into 2019. That’s good news for borrowers.
Disclaimer: This article includes predictions and forecasts provided by third parties outside of our company. We have presented them here as an educational service to our readers. The Home Buying Institute (HBI) makes no claims or assertions about future economic conditions.