Greater Phoenix Blue Chip
RISING MORTGAGE RATE AFFECTS HOUSING OUTLOOK
Fourth Quarter, 2018
The most significant change in the forecasts made by the Blue Chip panel this quarter came in the outlook for single family permits. Given the slowdown in new home sales in the final quarter of 2018, this should not be surprising. While permits in the fourth quarter were flat compared to the fourth quarter of 2017 (4,968 new home building permits in fourth quarter of 2018 vs. 4,673 new home building permits in the fourth quarter of 2017), new home sales fell from 4,462 in the fourth quarter of 2017 to 3,693 in the fourth quarter of 2018. The question is whether the slowdown in new home sales will prove to be transitory.
Most people in the industry believe that the unexpected slowdown was caused by the rapid mortgage rate increase in 2018. The higher rates created effects both on affordability and on the shock value of a rapid increase in mortgage rates, boosting monthly payments.
The modest impact on the panel’s projections indicated that the long term effect should be relatively minor. The decline in the consensus regarding permits for 2018, 2019 and 2020 amount to 350, 1,000 and 1,200 permits respectively. This is a decline of 3.8% in 2019 and 4.2% in 2020. Of the 11 panel members who submitted forecasts for 2019, 5 reduced their numbers; and 4 out of the 10 reduced their numbers for 2020.
As for apartments, office, industrial and retail, there were only relatively minor changes in the numbers indicating that the commercial outlook remains as it was in the 3rd quarter. This is good news.