What’s the Housing Finance Policy Center team keeping an eye on as we enter 2019? Their answers represent a cross-section of what’s happening in the housing finance space.

Vice President Laurie Goodman: I am most worried about whether we’ll figure out how to increase the housing supply quickly enough to address the acute shortage that is causing affordability problems in too many places. Two of the more obvious solutions are increased use of manufactured housing and new building technologies, such as modular and panelized housing, both of which I will be watching closely.

And I agree that the change in direction at the Federal Housing Finance Agency (FHFA) could be the most important thing to happen to housing finance in 2019. I’ll be watching to see if whatever changes are made will bring more private capital into the market.

Vice President Alanna McCargo: I’ll be curious to watch how the various proposals and policies that are being introduced, both legislatively and administratively, will affect housing affordability in 2019.

Next year, the 2020 presidential campaign will be in full gear, and already this year, we have seen affordable housing as a spotlight issue. I am excited that housing may actually be a serious platform issue and discussion going into 2020, given how fundamental and critical it is to every single voter in every single corner of the country. To see any meaningful change in our housing supply and demand, we need leadership and a vision from our government and the private sector.

And I’ll be watching the tweaks that will be proposed for updating the broader housing finance system through administrative reform.

Nonresident Fellow Ed Golding: I have never understood house prices. They have a mind of their own and move in unpredictable ways. They can’t continue to go up at 7 percent a year in an environment where interest rates and inflation rates are in the 2 percent range. The tax code increased the user cost of housing in some (upper-end) markets by as much as 30 percent but created little discernable change in house price momentum. 

Will 2019 be the year that house price appreciation comes back down to earth? Will it be a soft landing or a hard crash? How will all this affect the housing market and the overall economy?

Nonresident Fellow Jim Parrott:  I’m most interested in what kind of regulator Mark Calabria turns out to be. He has made no secret that he views the role of the government in our system to be dramatically oversized, and he is now in a uniquely powerful position to do something about it. But we’ll be heading into an election year and possibly an increasingly weak housing market, so it will be interesting to see how that tension between ideology, politics, and economics plays out.

Nonresident Fellow Ellen Seidman: I'm interested in when and whether the upcoming disaster in senior housing is going to hit the public radar and what the reaction will be, especially given the narrative that the upcoming seniors (i.e., boomers) have ruined the planet for everyone else. Not only are we about to have more senior renters (many on fixed incomes), but also fewer senior homeowners with any significant home equity (and some with large mortgages, especially compared with their incomes), more in need of structural modifications to be safe in their homes and more isolated in suburban and other locations that require cars that they can no longer drive.

Add to this our inability to get a real handle on reducing health care costs and the inevitable end-of-life issues that longer lives entail. Maybe some of this will be mitigated by those seniors who actually live longer while being healthier and the greater tendency of nonwhite families to live in multigenerational households. But it's not a pretty picture.

Senior Research Associate Jun Zhu: I am interested in housing supply issues, combined with land and housing prices, housing affordability, and labor market dynamics. Related to housing supply, I also want to take a look at manufactured housing, which contributed a lot to affordable housing. Mobility is another interesting topic, especially tied to local housing costs and interest rates.

I am also very curious about the future of the government-sponsored enterprises (GSEs) and the mortgage market. How will the credit risk transfer program affect the capital requirement of GSEs? How will the new originated purchase and refinance mortgages perform if there is another crisis?

Research Associate Bing Bai: I am interested in seeing how the housing and mortgage market trends shift in 2019. 2018 showed early signs of a slowdown in home price growth, softening of the housing markets, and rising inventory in even the hottest markets, like San Francisco and Seattle. Rising interest rates cut down the refinance volumes, and a slowdown in purchase mortgage market would put further volume pressure on the mortgage industry.

The less predictable general economy and stock market, as well as ongoing China–US trade tensions, cast more doubts on the housing market. It will be interesting to track how these market forces change the housing market and housing finance policy, the mortgage credit access level, home prices, housing supply (especially for affordable homes), and so on. We will be tracking these trends closely in our monthly chartbook.

Research Associate Jung Choi: I’m also interested in senior housing and a debate I’m hearing about aging in place. Some are trying to find ways to help older people age in place, but others are upset because seniors are restricting the housing supply by staying in their current homes.

I am interested in the mobility of seniors: who moves, why they move, and where they move to (or who does not move and why they stay). I’m also curious how the changes in the interest rate affects housing transactions in different market segments: high-, middle-, and low-cost homes.

And I’d like to see how this interacts with the supply constraints. Will places with greater zoning and land-use regulation be more affected by interest rate changes?

Research Associate Karan Kaul: Next year will represent the first time a Trump appointee takes charge of the FHFA, thereby influencing the market activities of Fannie Mae and Freddie Mac. Conventional wisdom is that the new FHFA director will attempt to shrink the market footprint of Fannie and Freddie.

The new year could also be when the Federal Housing Administration (FHA) —which is becoming increasingly concerned about the risk profile of its book of business—could take actions to mitigate that risk. With nearly two-thirds of recent originations flowing through Fannie Mae, Freddie Mac, and the FHA, I am interested in how the market will react should all three shrink their footprint at the same time.

Research Assistant Sarah Strochak: I’m excited about changes in zoning laws across the county. The country as a whole faces an acute supply shortage, which is partially driven by local zoning regulations.

Minneapolis just passed Minneapolis 2040, the city’s comprehensive plan that eliminates single-family zoning across the city and allows for denser development near transit corridors. In a city that faces growing demand and large racial gaps in homeownership, it will be interesting to see how this plan affects affordability and homeownership.

Meanwhile, on the West Coast, California lawmakers have revived a bill to upzone areas in transit- and job-rich areas. I’ll be tracking these initiatives as we look at solutions that can make a dent in the supply gap.

Research Assistant John Walsh: In the new year, I will be following how the introduction of alternative credit scoring methods affects credit availability in the housing market.

Mortgage credit remains much tighter today than in the years before 2008, creating a barrier to homeownership for individuals with less-than-stellar credit. But we’re seeing creative uses of big data to rate credit (PDF), including the UltraFICO score, which will look beyond borrowing to how consumers manage their bank accounts and pay bills. I will be watching how this particularly affects first-time buyers, millennials, and lower-income individuals in accessing home finance.