“Let the Good times roll…” (The Cars) As we enter the final weeks of 2019, the housing and home lending sectors have enjoyed a good year thanks to a “Goldilocks” scenario of a tight labor market, rising wages, consumer confidence, and three-year low interest rates.
Many are asking “What should we expect for housing, and thus lending, as we enter 2020?” The answer: 2020 may even be better for both.
Tailwinds for Housing in 2020 include:
- Housing starts of single-family homes are expected to hit the 1M mark for the first time in 12 years.This should help add to much-needed inventory in many parts of the country.
- In the final Jobs Report for 2019, which was November, the unemployment rate ticked down to 3.5%, a 50+-year low, while we created a massive 266,000 new jobs. Jobs buy homes, not rates. This kind of labor market strength heading into 2020 should further boost the housing sector.
- The Fed is not likely going to cut or hike rates in 2020, unless new economic threats emerge – meaning short-term interest rates are not likely to move much, if at all.
- Inflation remains low. Inflation is the main driver of long-term rates like mortgage rates. In the absence of any unforeseen pickup in inflation, home loan rates should remain relatively close to current levels for the foreseeable future.
Bottom line: 2019 was a good year and the data suggests the good times should continue well into the spring of 2020 making it a historic opportunity to have both a strong economy and low rates.
Forecast for the Week
This coming week will be the last full trading week for 2019. This means we may see trading volumes decline which could cause some market volatility should a surprise new item hit the wires.
The week will bring the Fed’s favorite inflation gauge, the core PCE, which has been running below the Fed’s target of 2.0%, currently running at 1.6%. The Fed stated last week that the core PCE will continue near current levels into 2020. That’s good news for home loan rates going forward.
The markets will also receive data from the housing sector, manufacturing, consumer sentiment and the final reading on Q3 GDP.
The main topic, U.S.-China trade issues will linger in the backdrop and potentially have a market effect as holiday trading volumes thin.
Reports to watch:
- Manufacturing data will come from Monday’s Empire State Index and Thursday’s release of the Philadelphia Fed Index.
- The NAHB Housing Market Index will be released on Monday, with housing starts and building permits on Tuesday followed by existing home sales on Thursday.
- The core PCE, personal income and spending, GDP, and consumer sentiment will be released on Friday.