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» VISIT US ONLINE @ DSNEWS.COM 63 » Risk: Recessionary lower rates could slow the housing market more if homebuyer confidence and banks' willingness to lend fall. However, it's unlikely we'll see a slowdown like the financial crisis. Home-price appreciation cooled in early 2019 as housing demand was muted in its response to lower rates. A sharp increase in home prices compared to incomes since 2012 means incomes are anchoring prices somewhat. » Prediction: Price increases are likely to slow regardless of what happens to interest rates and sales. e growth in prices since 2012 totals 58%, compared with a 24% increase in median-household income. As a result, home prices are approaching levels that may be unsustainable when compared with income. Home price growth will moderate to about 3% year-over-year. » Risk: ere may be some localized price declines, particularly in cities where affordability has become a challenge, but we don't expect a national decline. Housing supply has been a significant challenge since the financial crisis—an issue that will persist in 2020. Supply has tightened at the lower-priced segment of the market for several reasons. Two of those key reasons are the increase in real estate investors who are scooping up affordable homes to rent out and the lack of new building as home builders gravitate to more lucrative, higher-priced homes. » Prediction: Housing starts should increase in 2020, continuing momentum from late 2019 that is supported by lower rates. Still, an increase of about 5% in starts will do little to alleviate the supply crunch. » Risk: Presidential candidates are looking at housing legislation to boost supply. Uncertainty about the path of future regulations might spur some increased activity ahead of the election. GDP growth in 2019 will be about 2.2%, down from 2.9%. e key contributors to growth are consumer spending and residential investment as a solid labor market helps consumers. Private investment was weakened by the trade war which also created a drag on net exports. » Prediction: Leading economic indicators suggest economic growth will continue to slow in 2020 to about 2%. Strong consumer spending should continue to support growth, but the uncertainty will weigh on other sectors. » Risk: GDP growth may decline more than expected if consumer confidence becomes tepid. Consumer confidence has a history of sharp declines when confronted by external shocks. If trade disputes are not resolved, a slowdown in global economic growth could dampen the U.S. economy as well. e labor market has supported growth as the unemployment rate has reached a 50-year low of 3.5% in 2019. e number of open jobs exceeds the number of job hunters, suggesting strong demand for workers. at's leading to some acceleration in wages. » Prediction: We expect unemployment rates and jobless claims to remain low. Although a significant decline in the unemployment rate is unlikely, it may dip to 3.4%. We also expect wages and nonfarm payrolls to advance modestly. » Risks: Sustained weakness in business confidence has already led job growth in 2019 to be the weakest since 2010. If companies transition from slower hiring to actual job cuts, the unemployment rate could shift higher. e Fed has lowered its benchmark rate three times in 2019 and could cut one more time for a total of 100 bps in cuts. » Prediction: e FOMC will likely be on hold early in the year as it assesses the impact of its cuts so far. If growth declines just moderately in 2020 as currently expected, the Fed would stay on hold throughout the year. » Risk: Elevated political uncertainty and unresolved trade wars could weaken the economy and push the Fed to act. Additionally, if inflation fails to pick up despite the cuts so far, the Fed may feel it has room to act. Still, mortgage rates have moved lower well ahead of the Fed and might not decline in tandem. Although the homeownership rate is lower today compared to previous generations at a comparable age, the sheer size of the millennial generation bodes well for housing demand.

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