First-time home buyers might have a couple of things to cheer about in the final three months of 2018, even as mortgage rates are expected to continue their slow rise. Here are three housing and mortgage trends to keep an eye on from October through the end of the year:
Higher rates: If mortgage rates rise modestly, there are ways for home buyers to cope.
Slowdown in home prices: No, home prices aren’t expected to fall anytime soon, but the rate of increase has been decelerating.
Millennials: Although the 25-to-34 age group is lagging behind previous generations, its homeownership rate is rising.
Can rates stay under 5%?
Mortgage rates have remained under 5% for more than eight years, with the exception of two weeks in February 2011, when the 30-year fixed briefly breached the 5% level, like a fish that jumps so quickly that you hear it but don’t see it.
Someday, mortgage rates are almost guaranteed to rise above 5% again and stay there for months. But rate forecasters predict that it won’t happen in the fourth quarter of 2018, although it could come close. The National Association of Realtors, Fannie Mae and Freddie Mac predict that the 30-year fixed will rise by 0.1% or 0.2% in the fourth quarter. In NerdWallet’s daily rate survey, the 30-year fixed-rate mortgage averaged 4.74% from July through September, which would lift the fourth-quarter average to around 4.8% to 4.9%, if the predictions are correct.
- Don’t panic and buy before you’ve found the right home.
- Lock the rate when you can.
- Pay discount points to reduce the rate.
- Revise your price range.
Prices ease up on the gas pedal
Home prices are still rising. But they’re not going up as fast as they had been, and if the trend continues, it could bring welcome news to home buyers: Sellers might eventually compete for buyers instead of the other way around.
In August, the median existing single-family house sold for $267,300, according to the National Association of Realtors. That’s a 4.9% increase over the previous August, and it marks the third month in a row that year-over-year home price appreciation was less than 5%. The last time that happened was June through August 2014.
Meanwhile, the supply of homes for resale is creeping upward. There were 1.7 million existing single-family houses for sale in August, compared with 1.65 million in August 2017, according to the National Association of Realtors. Not a huge difference, but slower-rising prices and rising inventory could be hopeful signs for home buyers who are tired of bidding wars.
It’s possible that the fourth quarter could turn from a seller’s market “to one of maybe more balance or potentially somewhat of a buyer’s market later this year,” says Mark Fleming, chief economist for First American, a real estate services company.
A buyer’s market is far from a sure thing, though. Fleming says there is so much pent-up demand for homes that a modest rise in mortgage rates wouldn’t dent home sales.
Young buyers enter the market
Millennials are finally gaining a foothold on homeownership.
For Americans under age 35, the homeownership rate in the second quarter of this year was 36.5%. That’s the highest rate for under-35s since 2013. Millennial homeownership has been climbing since it bottomed out at 34.1% in 2016.
Even with that progress, millennials have a long way to go to match the height of ownership that previous generations enjoyed.
When they were 25 to 34 years old, baby boomers and Gen Xers had homeownership rates about 8 percentage points higher than 25- to 34-year-olds in 2015, according to research conducted by the Urban Institute. “If the homeownership rate for millennials had stayed the same as previous generations, there would be about 3.4 million more homeowners today,” the institute reported this summer.
Blame the millennials’ lower ownership rate on a mix of social and economic factors. The biggest contributor comes from their tendency to get married at later ages than previous generations, according to the Urban Institute. On top of that, millennials have more education debt, and more of them live in expensive cities, increasing the time it takes to save for a down payment.
Misconceptions about mortgages aren’t helping. In one survey, half of renters told the Federal Reserve that they rent because they can’t afford a down payment. And in another survey, 29% of respondents told NerdWallet that a 20% down payment is necessary to qualify for a mortgage. Good news: You can buy a house with a lot less than 20% down.
- VA loans, guaranteed by the U.S. Department of Veterans Affairs, require no down payment.
- USDA loans, guaranteed by the U.S. Department of Agriculture for homes in rural areas, don’t require a down payment, either.
- FHA loans, insured by the Federal Housing Administration, have a minimum down payment as low as 3.5%.
- Some conventional mortgage programs allow down payments as low as 3%.
The even better news is that each state has first-time home buyer programs that offer benefits such as down payment assistance and below-market interest rates. They can offer novice buyers, whatever generation they belong to, the necessary boost to achieve homeownership.