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12 | M R EP O RT COVER STORY I t's been a wild year for the mortgage and housing industries. Hurricane Dorian plowed through the Bahamas, later lashing the Eastern-seaboard. California felt the forces of nature as wildfires burned more than 77,000 acres and destroyed 134 homes, according to the San Francisco-Chronicle. Home prices continued their ascent as the months ticked by, with Black Knight reporting in November that home-price appre- ciation in September rose 0.2% to 3.95% for the month—the highest figure since March. In fact, the average home price, according to Black Knight, is up 54% from the bottom of the market from early 2012 and is 15% higher than the pre-crisis peak set in June 2006. And don't forget about the millennials and the nearly eight million first-time homebuyers set to enter the market within the next two years. What does this all mean as we are set to embark on a new decade? MReport spoke to industry insiders from Fannie Mae, Freddie Mac, Genworth Financial, and more on their thoughts on trends, challenges, and what the coming year has in store. 2019: The Year That Was O ne of the main cruxes of the housing market over the past year has been the continual rise of home prices and the related af- fordability crisis. A recent Redfin survey that 46% of respondents said rising home prices over the past decade have made their lives worse. Nor are high-priced homes exclusive to markets such as San Francisco and San Jose (both have average home sales of over $1 million). Affordability chal- lenges have reached the heartland as well. Idaho isn't just known for potatoes—it was home to the highest home-price appreciation in the nation over the past year. CoreLogic's Home Price Index for August reported a year-over-year price growth of 11.6%. The next highest increase was neighboring Utah at 8%. Doug Duncan, Chief Economist at Fannie Mae, says that while the cyclical peak in housing activity was seen in 2017, national home prices have strengthened again in recent months amid a fresh drop in mortgage rates. A continuing factor driving up home prices is inventory supply. Zillow reported that there were more than 100,000 fewer homes for sale in September, represent- ing a 6.4% annual decline. The number of homes for sale in the month was at its lowest level since 2013. Home values rose by nearly 5% during that same time. When looking at home prices within each region, the high- priced segment in almost every market has flattened or is falling. At the same time, the price of mid-priced homes in different markets varied by geography depending local employment con- ditions. "When it comes to entry level homes, every market saw an appreciation in prices because of strong demand and a lack of supply," said Duncan. Rick Bechtel, EVP and head of U.S. Residential Lending for TD Bank, had a more optimistic look at the past year, calling it "one of the best environments in ages for housing." "I think it's a unique environment in which unemployment's low, everybody's got a job, and you've got a really strong economy," said Bechtel. "At the same time, you have near-record low rates, and that combination usually doesn't come together. Those are usually in conflict with each other." The trade-off to the strong economy is the rising home prices, which is something Bechtel believes will continue into 2020. "As demand goes up, prices go up. There is a complex stew there in trying to figure out how to get housing supply to meet the level of demand at the price point and in the locations that the demand exists today," he said. "Those are not easy issues, and they're not quickly solved." Those declining mortgage rates have defined the past year accord- ing to Anthony Casa, Chairman of AIME. "We, as an industry, are closely tied to low interest rates, and 2019 proved that relationship, as we saw a direct correlation in both purchase and refinance produc- tion and the rise and fall of mortgage rates," Casa said. Casa echoed Duncan's senti- ments, saying that the home prices will continue to be a factor in the year to come as home- building lags behind demand. Other challenges he foresees will be shortages in skilled labor and rising construction costs. "Unless those underlying eco- nomics improve to the positive, The Race Into 2020 Industry insiders discuss how home prices, economic growth, and changing homebuyer demographic shaped 2019—and what's in store in the year ahead. By Mike Albanese