Bloomberg Interview: Will Home Prices Fall In 2019?

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Today I was interviewed by Lisa Abramowicz and Paul Sweeney for Bloomberg Radio. You can listen to the interview here:

https://www.bloomberg.com/news/audio/2019-02-11/coastal-cities-to-see-home-values-decline-mohtashami-radio?

In the interview the main point I wanted to get across was that for 2019 is that I am forecasting for another down year for existing home sales but baseline demand for sales is still intact.

I suggest that the existing home sales market be viewed this way:

Since 2013 we have demand composed of these segments:

4,000,000 million mortgage buyers  ( baseline demand)
1,000,000 cash buyers
600,000 marginal home buyers ( cash + mortgage)

We have had this demand group for a few years now. Because of this existing home sales have been in this range of 4,900,000 – 5,510,000. I haven’t forecast growth since 2016.  This year I am expecting sales to be in the range of 4,920,000 to 5,290,000 homes. Just like in 2018, the number of cash buyers is falling and areas where housing is more expensive are seeing a decrease in demand from mortgage buyers.

Last year we had positive year over year prints in purchase applications every week but six. We only had two real negative prints toward the end of the year but the heat months from the 2nd week of January to the first week of May were always positive on a year over year basis. One of my prediction for 2019 was that we would have more negative year over year prints than we did in 2018 but nothing like what we saw in 2014 when prints were down on trend 20% year over year.

So far, we already have had 2 negative prints in the heat months. While this seems really bad, as long as the negative prints do not go into double digits it isn’t that big of a deal. Remember, we had positive 1%-11% growth in purchase applications in 2017 and 2018 and that didn’t amount too much either. The higher trend from the 2014 lows in applications are prevailing. Remember, too, however that the number of cash buyers are falling, If they continue to fall, we will need more year over year growth in mortgage buyers to make up for this deficit. Falling cash buyers was one reason why sales were negative in 2018, even though the purchase application index was positive year over year for 10.5 months of the year.  Context is key here. Last year sales went from 5,510,000 to 5,340,000. This decline occurred even with nominal home prices at all time highs and higher mortgage rates. This is why in my 2018 prediction article I said to anticipate negative sales and higher inventory but not to over react to it.

From Calculated Risk 
https://www.calculatedriskblog.com/

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In regard to home prices, on a national basis home prices should continue to grow year over year on a nominal basis. Real home prices should go below 1.4% growth year over year and should even be negative in some markets. Buyers in certain markets like Seattle, California, Las Vegas and New York, who bought in March, April or May of last year in bidding wars will likely see small declines in their home prices. My next door neighbor in Irvine fits into this category.  I will be keeping tabs on the estimated value of  that home.  However, I don’t expect big declines in demand or massive monthly supply spikes like what we saw in 2006-2008 to create any meaningful price declines in any markets. We have be mindful that this housing cycle never had a boom in total home sales. The epic sales decline that some housing bears are praying for will not happen in 2019.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2019/01/29/s-p-case-shiller-home-price-index-increases-continue-to-slow

Feb Real Home prices YoY

In regard for mortgage rates, I may have been the sole individual forecasting lower rates for 2019. I anticipate rates being in a range of 4.125% – 4.875%,  Most of the fall in the bond market has already taken place, as it was catching up to the down trend in inflation expectations. The bond market will put up a good fight at this level for the 10 year yield between  2.55% -2.62%. We could crack those levels and head toward 2.21% on the 10 year yield if U.S. and global PMI data gets weaker together and we have a stock market sell off.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2019/02/08/treasury-snapshot-10-year-yield-at-2-63
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All my forecast for 2019 which can be found here:

https://loganmohtashami.com/2018/12/29/2019-economic-housing-predictions/

My forecast is based on lower mortgage rates,  I don’t see lower mortgage rates creating year over year growth in existing home sales. Later in the year if sellers are more willing price their homes realistically, we could see some better year over year prints in certain markets. Lower mortgage rates will help new home sales more.  New home sales are already historically low and need a boost to get back to the sales trend of 640,000.

Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data  daily on his own facebook page https://www.facebook.com/Logan.Mohtashami