Purchase demand projected to weaken in 2019

Although the economy significantly strengthened throughout 2018, several reports now indicate Americans are on the cusp of an economic slowdown.

And while the housing market benefited from last year’s relatively healthy economy, oncoming economic headwinds are projected to weaken buyer demand, according to new data from Capital Economics.

“A drop in mortgage interest rates to a nine-month low in January helped boost mortgage demand. But the jump in applications for home purchase is already unwinding,” Capital Economics writes. “Given a slowing economy and lack of homes for sale, housing demand is likely to tread water this year even as mortgage rates see further falls.”

Last November, the 30-year fixed rate reached 5.17%, but fell to just 4.69% by the end of January. Not only was this the lowest rate since April of 2018, but January’s levels highlighted a steady drop in the 10-year Treasury yield.

Capital Economics notes that although declining interest rates boosted mortgage demand in the first half of January, increases in refinance activity have pushed demand back to March levels.

In fact, Capital Economics does not expect housing demand to sustain notable growth this year.

“Admittedly, we think mortgage rates will continue to decline, to around 4.3% by the end of the year,” the company writes. “But that will not provide much of a boost to mortgage demand. A slowing economy, and continued lack of inventory, will keep applications for home purchase flat this year.”

Notably, the Mortgage Bankers Association’s most recent Mortgage Applications Survey revealed mortgage applications continued to retreat further for the week ending Feb. 1, 2019.

“Despite more favorable borrowing costs, and after a three-week surge in activity, purchase applications have slowed over the past two weeks, and are now almost 2% lower than a year ago,” MBA Vice President of Economic and Industry Forecasting Joel Kan said.

Regardless of these concerns, Kan believes moderating price gains and the strong job market will help purchase growth going forward.

You can read the report here.

Article source: https://www.housingwire.com/articles/48115-purchase-demand-projected-to-weaken-in-2019

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