Mortgage rates have dropped significantly as of late, with the 30-year fixed coming in at an average of 4.08% this week.
The development has spurred activity in purchase mortgage applications as homebuyers act now to take advantage of the low rates while they’re here.
But analysts at Capital Economics warn against getting too excited about the possibility that low rates will heat up the housing market.
“Mortgage interest rates have dropped sharply since the end of last year, and the 30-year fixed rate is set to fall to 4.2% by the end of 2019,” analysts wrote. “But that won’t spur a significant rise in housing market activity.”
Blame the slowing economy.
“That will hit homebuyer confidence, and with inventory levels still low that implies existing home sales will do no more than tread water over the next year or so,” the analysts wrote.
Tempered housing demand will cause home prices to continue to slow, the group said.
Price growth slowed to 5% in 2018, and Capital Economics predicts it will land around 2% by year’s end and close out 2020 at 0%.
But things will look up from there.
“An improving economy, coupled with low interest rates, will lead to a resumption in growth 2021, and we expect a rise of around 3%.”
The group also predicts that mortgage rates will end up around 4.2% by late 2019.
But as the economy’s slowdown begins to right itself in 2020, mortgage rates will again creep upward, the analysists predicted, with the 30-year fixed landing around 4.7% at the end of 2021.
But while the housing market won’t exactly see the flurry of activity some had hoped for, Capital Economics said that new home sales will find some support this year in the shift toward building cheaper starter homes, which are currently in short supply.
“Lower lumber prices will support a shift to cheaper homes and, alongside upbeat homebuilder sentiment and the relatively bright outlook for new home sales,” the group wrote, “that should enable a decent rise in single-family housing starts over the next couple of years.”
Published at Fri, 05 Apr 2019 17:31:00 +0000