TheMReport

22 | TH E M R EP O RT FEATURE these levels in 2019. "Rates have increased this year more than I would have expected if you would have asked me at the beginning of this year," Khater said. "If you go back to September of 2017, they were down in the high three's, and here we are already knocking on the door of 5 percent." As far as existing homeowners are concerned, Nothaft projected rising rates would also mean that there would be less homeowners moving and putting their homes up for sale. They would be more likely to "choose to stay in the same home for a bit longer and choose to make improvements in their current home. So inventory levels are low relative to what they have been and that's working to depress home sales." Apart from home sales, afford- ability has been impacted by the continued rise in home prices outpacing wages and the slow- down in construction activity in the affordable space, according to Kathy Cummings, SVP, Bank of America. But, she said that lend- ers were looking to help home- buyers achieve homeownership, especially if they were creditwor- thy borrowers. What is important is education and preparing for homeownership. "According to Bank of America's Fall Homebuyer Insights Report, 72 percent of millennials are prioritizing homeownership, and 38 percent of first-time buyers are looking to buy in the next two years, so it is important to educate prospective buyers on how home- ownership can be achievable," Cummings said. Giving an example of Bank of America's low down payment programs, she said that not only did such programs provide low down payments and competitive rates, they also helped eligible buy- ers look into down payment and closing cost assistance programs available in their community. "A lot of would-be buyers are currently renting, and as rents increase, they're not able to save as much or quickly enough to af- ford a down payment in the near future," observed Mittal. Despite rising rates though, Mittal said that buying a home was still more affordable than renting in the long run. "As homebuyers compare a mortgage against the rent they would pay, even with rising rates, many would find that buying a home would be a cheaper option and has many long-term benefits, most notably the opportunity to build equity," Mittal said. However, rising mortgage rates are only one part of the problem. Housing supply, especially at the lowest price-tier—the one that first-time homebuyers look at—is an issue that will be observed closely in 2019. 2. The Inventory Conundrum I t's true that supply has in- creased slightly over the past few months. But the paucity in home inventory has impacted home sales and prices through most of the year, in fact, according to Khater the chronic lack of sup- ply has actually been "a decades- old issue, but was only masked by the last boom and bust." Giving the example of manu- factured housing—a traditional source of affordable supply—he said that property types that were historically affordable were decreasing consistently over the past few decades. "Manufactured housing boomed between 1993 and 1998. It busted in 1998, and has not recovered since then. We are producing about 90,000 manufactured housing units today where we used to be up in the 300,000s during the boom for these units," Khater said. Explaining the impact of inven- tory on competition among home- buyers, Nothaft said, "The months of supply available for sale over the past year has been running at the lowest level that we have seen in the last 20 years and conse- quently, the amount of time that a home is on the market before it sells has really shortened. So the percent of homes selling within 30 days of their listing has risen over the last couple of years." Looking at 2019, Jeff Taylor, Founder and Managing Director of Digital Risk, projected that housing supply would remain tight. Khater agreed, "We're just not building enough," he said, adding that one way of start- ing to solve the problem was to approach policymaking from the supply angle. "Unlike past cycles which could be managed by sorting demand, the problem this time is on the supply side and there are no federal interven- tions or levers to deal with that," Khater said, adding that while states had the ability to intercede they delegated to the localities. "But some states are starting to rethink and are looking at intervention in a variety of ways such as increasing production or looking at rent controls. Creating policies and incentives to increase production are the two main ways to solve this issue," Khater ob- served. "The problem is that you have local resistance in the form of homeowners who are concerned that the increased supply will lead to a decline in home values." 3. Price Pains I nventory's also affecting prices, especially at the lowest price points of the market. "Sellers are pricing their homes higher and higher as they want to make a big profit from their last purchase, but all this seems to do is force prices even higher, particularly for to- day's first-time buyers," said Matt Clarke, COO and CFO, Churchill The combination of rising home prices and mortgage rates could mean that the monthly P&I equivalent for the median home was likely to jump as much as 30 percent in 2019, compared to last year, if all things trended as projected.

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