Aerial view of homes in California
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As we hurtle toward 2019, economic uncertainty looms ahead as investors keep a wary eye on trade tensions and wild stock market swings. One key economic driver that’s increasingly difficult to peg is the housing market.

Softer activity in 2018 has set the stage for smaller gains in home prices and mortgage rates in the new year, but make no mistake: both are expected to go up. The question in the minds of homeowners and homebuyers: How much will they go up?

Here’s a snapshot of expert predictions for what consumers will see in mortgage rates and housing activity in 2019.

Mortgage rates will go up (again)

Mortgage rates can be difficult to pin down with precision, but experts agree on one thing: Rates will stay north of 5 percent throughout 2019.

The Mortgage Bankers Association forecasts the average 30-year fixed mortgage will hold at 5.1 percent for most of the year. As a result, mortgage origination volume will stay flat compared with 2018 at roughly $1.63 trillion, says Mike Fratantoni, MBA’s chief economist.

Other experts believe rates will move even higher. Danielle Hale, Realtor.com’s chief economist, says the average 30-year will stay at 5.3 percent throughout much of the year, reaching 5.5 percent by the end of 2019.

Slower economic growth in 2019 could temper major rate swings. Unless inflation picks up, rates and home sales will stabilize in the new year as GDP growth slows to 2.3 percent, down from 3.1 percent in 2018, says Fannie Mae Chief Economist Doug Duncan. The economy will slow further to 1.6 percent growth in 2020, he added.

“If mortgage rates trend sideways next year, as we anticipate, and home price appreciation continues to moderate,” Duncan says, “improving affordability should breathe some life into the housing market.”

What it means for you: With higher rates, your mortgage borrowing costs will go up. To get the most competitive rate offers possible, boost your credit score and make a larger down payment. You may need to lower your price point to stay within budget — and that means adjusting your expectations of the type of home you can reasonably afford.

Home-price growth will moderate … a little

Home prices have surged in recent years, adding to buyers’ affordability woes. Although prices are still projected to go up in the year ahead, they’ll do so at a slower pace.

Median existing-home price appreciation is expected to grow 2.2 percent in 2019 from this year, according to Realtor.com. The median existing-home sales price will rise to $266,800 in 2019, up 3.1 percent from 2018, according to the National Association of Realtors.

“Home price appreciation will slow down — days of easy price gains are coming to an end — but prices will continue to rise,” says Lawrence Yun, NAR’s chief economist.

Freddie Mac predicts that home prices will finish 2018 up 5.1 percent over last year. Growth will moderate to 4.3 percent in 2019 and to 2.9 percent in 2020.

What it means for you: Real estate is local so your area might see prices move higher or lower depending on demand and inventory levels. Before you go house hunting, meet with a mortgage lender to get preapproved and see where you stand.

Above all: Don’t overreach on price if your budget can’t support a monthly mortgage payment at the top loan amount you qualify for. It’s best to be more conservative and give your budget some wiggle room. Use Bankrate’s calculator to determine how much house you can afford.

Another tough year for housing inventory ahead

Lack of housing inventory, especially for entry-level homes, has been a thorn in buyers’ sides throughout most of the country. The situation isn’t expected to get much better in the coming year.

Inventory increases will be moderate, with a likely 7 percent rise year over year in 2019, Realtor.com predicts. The bad news: Most inventory growth will be in the upper-end price points, leaving those in the market for more-affordable starter homes in a lurch.

“Although the number of homes for sale is increasing, which is an improvement for buyers, the majority of new inventory is focused in the mid- to higher-end price tier, not entry-level,” Hale says. “Rising mortgage rates and prices will keep a lot of new inventory out of their budget and make it especially tough for first-time homebuyers.”

What it means for you: In many areas, you’ll have to pounce quickly when homes come on the market that you’re interested in. Sellers may not get the over-asking price bidding wars of recent years, but make no mistake: It will still be competitive. Having a preapproval letter in hand, along with a sizable down payment and few requests for concessions, will be critically important to getting your offer noticed.

New construction picture

New construction is the special sauce that’s missing from the equation to bring the housing market back to a more balanced footing. Builders simply aren’t producing the amount of new homes needed to offset existing-home inventory shortages.

The MBA predicts average total housing starts will increase to 1.3 million units in 2019, up nearly 3.5 percent from 1.26 million in 2018. Meanwhile, Realtor.com predicts housing starts will be up 8 percent year over year in 2019.

Facing labor shortages and tariffs on costly building materials, builders have been unable to keep up with buyer demand so they’re building more high-end homes to stay profitable. And that’s a problem for a majority of buyers who are looking for more affordable homes, says Sam Khater, Freddie Mac’s chief economist.

“If new-home sales are to resume growth in 2019, builders may have to shift their focus to more modestly priced homes and smaller-sized homes to help offset housing affordability concerns,” Khater says. “But with cost pressures pinching profitability, this will be a significant challenge.”

NAR’s Yun agrees.

“All indications are that we have a housing shortage,” Yun says. “If you look at population growth and job growth, it is clear that we are not producing enough houses.”

What it means for you: Buying new is a good alternative if existing homes on the market don’t measure up to your wish list. You’ll likely pay a bit more to buy new, and the process typically takes longer and has more wrinkles than buying an older home. You’ll also want to avoid making costly mistakes, such as adding pricey upgrades, failing to shop lenders, and not budgeting for items you’re responsible for paying.

Final thoughts

Rising rates and home prices have been a drag on home sales for much of the year. It’s important, however, to put everything into context. Despite what the market does, your reason to buy a home — or sell one — is highly personal. Changes in market conditions may mean you have to rethink how much house you can afford, but the need for housing will always be there.

Tend to your financial house to position yourself for success when it’s time to buy. The conventional wisdom of saving up for a down payment as early as possible, improving your credit, paying down debt, and sticking to a conservative home-buying budget still apply. Working closely with a skilled real estate agent and mortgage lender will help you understand local market conditions, your limitations and the opportunities.