Zillow Makes Its 2019 Real Estate Predictions

Real estate database company Zillow Group expects mortgage rates will rise significantly in the new year, predicting the 30-year fixed mortgage rate will reach 5.8 percent by the end of 2019. The rate currently stands at 4.55 percent, according to mortgage buyer Freddie Mac.

“The central storylines in the U.S. housing market didn’t change much over the past few years, but a series of emerging trends are setting up a much different narrative for 2019,” said Zillow Senior Economist Aaron Terrazas in a statement.

Entering 2019, interest rates for 30-year and 15-year fixed rate loans are higher than they were 12 months ago by about a half percentage point, according to Freddie Mac. Since November, rates have dropped from just below 5 percent to 4.55, as of December 27.

One factor suggesting that mortgage interest rates will rise in 2019 is that the Federal Reserve increased its benchmark funds rate four times in 2018, most recently in December, and projects two more rate increases in 2019.

Zillow’s prediction of higher mortgage rates would especially put a pinch on affordability for first-time home buyers in expensive markets like the Hamptons. Changes to federal tax law may also contribute to the pinch.

In December 2017, President Donald Trump signed the Tax Cuts and Jobs Act, capping mortgage interest deductions to loan balances of $750,000 for home buyers who make purchases until 2026 as well as limiting to a maximum of $10,000 the amount of state and local property taxes that a homeowner can deduct.

“Certain headwinds—including rising mortgage interest rates, higher rents and stiff competition for housing in the most desirable areas—will only grow stronger over the next year, but that won’t necessarily be a bad thing,” Mr. Terrazas said. “A slower-moving market is likely to give more buyers a chance to catch their breath and choose from a wider selection of homes that fit their preferences and budgets.”

As a result, commutes will worsen as these potential home buyers are pushed toward rentals, further away from jobs on the South Fork, according to Zillow. Alternatively, Long Island workers and young people settling in the suburbs will be tapped for Amazon’s second headquarters poised for Queens, Zillow added.

“2019 looks to be a pivotal year as the market cools and transitions from one marked by robust recovery into one more in line with historic norms and more balanced between buyers, sellers and renters,” Mr. Terrazas said.