CoreLogic Chief Economist Frank Nothaft said the pace of home-price gains will quicken over the next 12 months as low mortgage rates give buyers the ability to pay more for properties.
Home prices probably will increase 5.8% in the 12 months through August 2020, Nothaft said in an exclusive interview with HousingWire. That’s a faster pace than the 3.6% growth seen in August 2019 from a year earlier.
Rates for fixed mortgages will probably stay below 4% through the end of 2020, Nothaft said. Cheap financing allows homebuyers to qualify for a bigger loan because the amount they can borrow is based on their monthly payment, which drops as financing costs fall.
“We’re in a very special environment for housing demand – for the first time since at least World War II we have mortgage rates below 4% while at the same time the unemployment rate is below 4%,” Nothaft said. “That’s a golden period that will stimulate activity, and we expect sub-4 mortgage rates and sub-4 unemployment rate through at least the end of 2020.”
The trade war that’s been the main driver of a global economic slowdown won’t necessarily cause a recession in the U.S., Nothaft said. Economic activity will slow in the U.S., he said, but it probably won’t contract. A recession is defined as negative GDP for two subsequent quarters.
“The slowdown of the global economy, mainly related to the trade war, could be enough of a trigger to push the U.S. into recession, but I don’t think that will happen,” said Nothaft, who put the odds of a recession in 2020 at “one in three,” or 33%.
Nothaft said he expects U.S. GDP will grow by about 2% next year.
“That’s sufficient to create jobs and keep the unemployment rate below 4%,” he said.
The impeachment inquiry Congress opened last week probably won’t have an effect on mortgage rates, Nothaft said. Though, if it does, it might lead to rates going even lower, he said.
“If it leads to some sort of crisis, that’s going to lead to a flight to quality in the capital markets, and perhaps a big downturn in the stock market that could be negative for the overall economy,” Nothaft said.
When investors start looking for assets they perceive to be “safe harbors,” it often benefits home-loan rates by increasing competition among bond investors. However, the event that caused that so-called flight to safety could damage the economy and stall the jobs market, which would limit the number of people able to qualify for a home loan.
“It’s possible that a year from now there could be a full-blown crisis in the Middle East that’s going to cause oil prices to skyrocket and trigger a recession, but absent something like that, we see a real golden period for housing through at least the next year,” Nothaft said.