Jan 23, 2020

The housing market faces an uncertain 2020

Illustration: Aïda Amer/Axios

After being one of the weaker sectors of the U.S. economy in the first half of 2019, the housing sector rebounded, spurred by a trio of U.S. interest rate cuts from the Fed that lowered the cost of mortgages.

Yes, but: There are clouds on the horizon for 2020, as declining home affordability continues to be a concern, especially for first-time home buyers.

  • The median existing-home price for all housing types in December was $274,500, up almost 8% from December 2018, as prices rose in every region, NAR reported.
  • November’s price increase marked 94 straight months of year-over-year gains.

Flashback: U.S. existing-home sales rose 3.6% from November to an annual rate of 5.54 million in December and jumped nearly 11% from a year ago, according to the National Association of Realtors.

  • After a sluggish start to the year, following the government shutdown and rising mortgage rates, total home sales ended the year at 5.34 million, the same pace as in 2018.
  • The average interest rate on a 30-year fixed mortgage was 3.65% as of Jan. 16, according to Freddie Mac, down from 4.45% a year ago.

Watch this space: “Price appreciation has rapidly accelerated, and areas that are relatively unaffordable or declining in affordability are starting to experience slower job growth,” Lawrence Yun, NAR’s chief economist, said in a statement.

  • “The hope is for price appreciation to slow in line with wage growth, which is about 3%.”

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U.S. fixed mortgage rates drop to three-year low

Illustration: Sarah Grillo/Axios Visuals

The average rates for 15- and 30-year fixed mortgage dipped to their lowest levels in three years this week, per new data from mortgage giant Freddie Mac.

The big picture: The bottom rung of the housing ladder has now ascended beyond the grasp of millions of Americans, regardless of whether they want to rent or buy, Axios' Felix Salmon reported last week. Home prices have surged in recent years.

Americans want to buy homes, but they're disappearing

Reproduced from Fannie Mae; Chart: Axios Visuals

The steady decline in U.S. interest rates helped the housing sector recover from its malaise in early 2019, and the momentum is continuing so far in 2020.

Yes but: Prospective homeowners are finding it increasingly difficult to find a home, as the lower rates have brought on increased selling prices and fewer available homes.

The new housing crisis

Illustration: Sarah Grillo/Axios

Rising house prices don't cause lenders to lose money, or economies to implode. But the bottom rung of the housing ladder has now ascended beyond the grasp of millions of Americans, regardless of whether they want to rent or buy.

Why it matters: When house prices fall too much, the rich and powerful lose money. That, in turn, means central banks around the world will swing into action to try to save the economy. When home prices rise too much, on the other hand, there's no such urgency on the part of policymakers.