Surprise! After talk of a downturn, a housing and mortgage rally emerges.

After much recent talk about a slowdown in the housing and mortgage markets, the residential real estate industry appears to have done an about-face.

Much of the change has been attributed to the Federal Reserve’s announcement in mid-March that it won’t raise short-term interest rates for the remainder of 2019.

As a result of the Fed’s decision to hold the line, mortgage rates dropped in late March. Some housing experts now predict mortgage interest rates could remain low for the full year, giving a strong boost to the spring and summer home buying season and stimulating what had been a decelerating housing market.

Housing economists are scrambling to reinterpret the latest data and to predict what will follow, with some now believing the country could see a pick-up in home price growth instead of the moderating prices that many anticipated.

Lower mortgage rates should help real estate investors who depend on buyers seeking to qualify for a mortgage to purchase their properties, particularly millenials and other first-time homebuyers.

Examining the Data
Here’s a quick glance at some of the latest housing and mortgage data and what could be in store for the remainder of 2019:

• Mortgage applications, led by refinances, skyrocketed to their highest level in 2.5 years for the week ended March 29, according to the Mortgage Bankers Association. Applications were up 28.4% compared to the year-ago period and up 18.4% from the previous week. Refinances were up 58% over a year ago and up nearly 39% from the prior week.
• A 30-year fixed-rate mortgage had an interest rate of 4.05% in late March and a 15-year mortgage had a 3.57% rate, according to Freddie Mac.
• Existing-home sales rose nearly 12% in February, rebounding strongly with the largest month-over-month gain since December 2015, according to the National Association of Realtors.

• Pending home sales dropped 1% in February, according to this leading indicator of home sales. It will be interesting to see if this metric rises in the coming months in conjunction with the drop in mortgage rates.
• New home sales reached an 11-month high in February. Sales for January have been revised upward, according to the Commerce Department, which said new home sales rose 4.9% to a seasonally adjusted annual rate of 667,000 units in February, the highest level since March 2018. Lower mortgage rates in late March or April could have a positive impact on future data, although affordability, labor shortages and rising building supply costs could cause some headwinds.
• Home prices will heat up again as mortgage rates fall, according to CoreLogic. They predict that annual gains in home prices could hit 4.7% by February 2020. Price increases decelerated in February with just a 4% year-over-year increase.
• Housing starts cooled in February, reaching a seasonally adjusted annual rate of 1.16 million, down 8.7% from January’s revised rate of 1.27 million. Single–family housing starts hit 805,000, down 17% from the revised January figure of 970,000.
• Mortgage delinquencies could rise this year, Moody’s said, as underwriting standards loosen.

Mortgages and the Economy
The phones are ringing and the texts and emails are coming in fast and furious for real estate agents, mortgage brokers and private lenders since mortgage rates declined in late March.

Some housing industry leaders blamed the Federal Reserve’s multiple rate increases last year for housing’s cool down. Now that rates have declined—and could stay down for a while —the market is adjusting to what might be a new normal. Private lenders are busy and likely will continue to be through the spring and summer home-buying season.

Inventory for moderately-priced housing that is the “sweet spot” of many real estate investors has been hard to find. The possibility that lower mortgage rates could entice move-up buyers to sell could provide some inventory relief and opportunities for investors to pick up additional properties to fix and flip using leverage. Real estate investors like moderately priced homes, as there are a greater number of potential buyers at that price point than for the more expensive properties. Lenders also like them because they offer greater liquidity and are often seen as less risky than more expensive homes with a smaller buyer pool.

Providing financing to investors is still a huge opportunity for private lenders. In 2018, 39.1% of all homes flipped in 2018 were purchased with financing, according to ATTOM Data Solutions. That figure was down slightly from 39.4 % in 2017. But it still suggests the market is available for further penetration, especially as private lenders continue to offer better leverage and rates continue to compress.

While rising prices make financing attractive, there are other reasons for real estate investors to pursue financing, including the opportunity leverage affords real estate investors to more easily grow their real estate portfolios faster than the buy-for-cash model provides. Financing available from private lenders helps investors use leverage to experience faster growth and greater profits.

Forecasting the Future
Housing experts and economists will be watching what impact the mortgage rate drop had, and is having, on the overall economy. Housing construction and related spending account for about 15% of the nation’s gross domestic product, according to the National Association of Home Builders, so the impact could be significant.

The concern, which is still present, is that the U.S. economy grew more slowly than most realized in the fourth quarter. This slower growth led the Federal Reserve to hold the line on additional rate hikes this year.

Real gross domestic product (GDP) increased at an annual rate of 2.2% in the fourth quarter of 2018, according to a third estimate released by the Bureau of Economic Analysis on March 28. That’s down from 3.4% GDP growth in the third quarter of 2018.

So, while the housing market may be feeling good about lower mortgage rates, the Federal Reserve is concerned about slowing U.S. economic growth. Global economic headwinds, especially in the areas of trade and tariffs, could further impact business confidence.

Exactly where housing is headed over the next few months is anyone’s guess, but the latest data indicate there may be a silver lining for the housing industry this year.