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Lazerson's predictions: Mortgage rates, home prices and sales to go down in 2019

By Jeff Lazerson

12/27/18

What’s up with mortgage rates? Jeff Lazerson of Mortgage Grader in Laguna Niguel gives us his take.

Rate news summary

From Freddie Mac’s weekly survey: The 30-year fixed rate improved to 4.55 percent, down 7 basis points from last week. The 15-year fixed averaged 4.01 percent, down 6 basis points from last week. And, the Fed raised its prime lending rate to 5.5 percent earlier this week.

The Mortgage Bankers Association is on hiatus this week and did not report loan volume.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $484,350 loan, last year’s payment was $159 lower than this week’s payment of $2,469.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages at zero point cost: A 15-year FHA at 3.50 percent, a 30-year FHA at 3.75 percent, a 15-year conventional at 3.75 percent, a 30-year conventional at 4.25 percent, a 30-year FHA high-balance ($484,351 to $726,525) at 3.875 percent, a 15-year conventional high-balance (same as FHA) at 4.125 percent, a 30-year conventional high-balance at 4.50 percent, a 15-year jumbo (over $726,525) at 4.125 percent and a 30-year jumbo at 4.75 percent.

What I think: 

How accurate were my 2018 predictions? And, what is to come in 2019?

1. I predicted the 30-year fixed rate would average 4.5 percent. Rates averaged 4.54 percent, according to Freddie Mac data. Right on!
2. U.S. residential loan volume will decrease to $1.5 trillion. Mortgage Bankers Association Chief Economist Mike Fratantoni recently estimated this year’s volume would total $1.64 trillion. I’m going to say half-right since I was within 10 percent.
3. First-time buyers will increase by 10 percent. Way wrong. According to Genworth Mortgage Insurance Company, first-timers were up by 17 percent earlier this year.
4. Cash-out refinance volume would increase by 15 percent. Freddie Mac data for the first three quarters of 2018 vs. 2017 indicates an 18 percent increase. Right (close enough).
5. Reverse mortgages would increase by 15 percent. According to HUD, HECM’s (home equity conversion mortgages) decreased by 11 percent. Wrong.
6. U.S. housing starts would increase by 15 percent. Census data indicates just a 4 percent increase. Wrong.
7. The Federal Reserve would raise rates just once. Fed raised rates four times. Super wrong.
8. The Consumer Financial Protection Bureau will loosen up on its ability to repay rule (easier loan qualifying). CFPB did become much fairer about enforcement but did not technically change the ability to repay rule. Wrong.
9. Orange County home sales volume will drop 5 percent. According to CoreLogic, sales decreased by 7 percent as of November. Right (close enough).
10. Orange County’s median home price would increase by 5 percent. According to the same data source on prediction number 9, the increase was about 6 percent. Right (close enough)!

Score is 4.5 out of 10 correct.

2019 Predictions:

1. The 30-year fixed rate will average 3.75 in 2019.
2. Nationally, 2019 refinance activity will be more than double of the 2018 numbers.
3. The Federal Reserve will not raise short-term interest rates.
4. FHA mortgage payment delinquencies will increase by 10 percent. We are talking about the canary in the coalmine.
5. FHA Commissioner Brian Montgomery will reduce the maximum debt-to-income loan approval ratio from its current 56 percent to 48 percent (principal, interest, taxes, insurance, HOA, credit report payments, alimony and child support divided by monthly gross income).
6. The U.S. will experience an inverted yield curve between the 2-year Treasury and the 10-year Treasury Constant Maturities (almost always a precursor to a recession).
7. GDP or Gross Domestic Product will see an average growth rate of 1 percent for the year.
8. Southern California home sales volume (Los Angeles, Orange, Riverside, San Bernardino and San Diego counties) will decrease by 8 percent compared to 2018.
9. The Southern California median home price will decrease by 3 percent.
10. Fannie Mae and Freddie Mae will remain in conservatorship for the 11th year.