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First American: Consumer house-buying power could rise to new heights in 2019

Projected fall in rates spells good news for homebuyers

In May, home prices fell 0.7%, declining 3.7% year over year, according to First American’s Real House Price Index.

According to First American’s data, unadjusted house prices sit 3.2% above the housing boom peak. Whereas consumer buying power rose 1.3% between April and May, rising 9.3% year over year.

When consumer house-buying power is factored in, home prices are actually 41.1% below their 2006 peak and 17% below prices from January 2000.

“Later this week, the Federal Open Market Committee will convene and likely announce a rate cut, according to experts. The first Fed rate cut since December 2008 will trigger industry and media speculation about mortgage rates declining further,” First American Chief Economist Mark Fleming said. “While changes to the federal funds rate don't directly influence mortgage rates, a rate cut will indicate concern about possible economic weakness and that may increase demand for long-term Treasury bonds, which mortgage rates follow closely.”

According to Fleming, the consensus among economists is that the 30-year, fixed-rate mortgage will decline from its first quarter 2019 rate of 4.4% to an average of 3.9% in 2019.

However, Fleming notes that Fannie Mae forecasts mortgage rates may actually fall to 3.8%, which could mean good news for the nation’s homebuyers.

“Fannie Mae forecasts that the 30-year, fixed-rate mortgage will fall from its July 2019 rate of 3.8% to 3.7% for the remainder of the year, boosting affordability for home buyers,” Fleming said. 

If the mortgage rate declines from its current July 2019 level of 3.8% to the expected level of 3.7% in the third quarter of 2019, Fleming says house-buying power could increase from $410,000 to $414,000.

“In this hypothetical 3.7% mortgage rate environment, consumer-house buying power would be 13.3% higher than it was in July 2018, when the 30-year, fixed mortgage rate was 4.5%,” Fleming said. “In fact, it would be the highest house-buying power in the history of the series, which dates to the year 2000.”

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