Sunrise or sunset on the housing market?

Question

Corelogic hosted their excellent annual symposium yesterday in New York. The team behind the CoreLogic Case-Shiller Home Price Index shared their views on what the future looks like for:

1.  The housing market.

2.  The economy in general.

3.  The activities of the GSE's as they de-risk their portfolios by selling NPL's

The session was kicked off by Frank Northaft, Chief Economist at CoreLogic who presented a comprehensive overview of the US housing market. In essence, it’s looking good for home prices for the next few years. Favorable economic conditions, limited supply and few new-house starts means prices should continue to rise at an annual clip of 5%.

Expect the next 3-4 years to be very good for the housing market…..for buyers with good credit!

Highlights

• Interest rates on 30 year fixed rate mortgages will remain below 5%.
• Sales turnover will continue to be half the historical average
• New Purchases will dominate the mortgage market as the refinancing boom has ended
• We will see a growth in HELOC’s after several years of minimal activity
• Defaults will remain very low (10% of the 10 year average)
• New building starts are running 30% below the 10 year average
• Inflation running at 1.6% still well below the fed target of 2%
• Unemployment at 5% and declining
• Consumer confidence rating at 96

Over the next few days, I will share more detailed insights on what we can expect in the housing market, the mortgage market and the distressed debt market over the next 3 years

Bob Malecki · Answer

We have found that providing seller carrybacks to those who cannot get a loan due to the low balance (generally $50K or below) that banks do not want to finance is an opportunity for us, especially since the P&I is generally lower than rent for similar sq. footage in many markets. Many families would rather own a home than rent if feasible.

Matt Sicignano · Answer

Yes-these figures from the chief economist of the National Association of Realtors also look impressive!

(wait, what? Is that date 2008??!!!)

Jade S. · Answer

@Paul Birkett...fantastic presentation of the Corelogic analyses.  I'm seeing similar trends with the housing stock in Georgia.  Townhouses and smaller SFH at lower than premium price points seem to move within days, especially during the prime rental season.  The presence of a major Army base and the state medical school locally helps support demand at that price point.  The upper end homes? They seem to linger on the rental market for weeks or even months.  And the rental rates don't seem to scale well at that higher home price point either.

Looking forward to more details from the Corelogic assessment and forecasts.

Paul Birkett · Answer

Hi @David Gilson, That's what the Corelogic data says:

1. There is less demand for high-end homes (prices expected to rise +4% for the top quartile in '16). Most of the recent new-build supply has been for larger higher, priced homes (+11% larger than the average in 2005 and +28% larger than the average in 1995). Since most large-home buyers will have more money and better credit, they will find it easier to qualify for mortgages. So there is less pent up demand.

2. On the other hand, there is more demand for lower-end homes (prices expected to rise +10% for bottom quartile '16). Those with poorer credit will struggle to qualify for mortgages thereby forcing them to remain as renters and pushing up rents

That said, I bet its very market specific so don't rely on the national data to make a local decision. Overall, I've always done much better with homes closer to the average for a neighborhood than for premium homes. Yes, I have collected great rents for a while but the homes were always much more difficult to re-lease

good luck

David Gilson · Answer

Hi Paul,

I'm actually at the high end of rents and looking to add 3-5 more properties depending on how much work is required. It sounds like your information is suggesting to focus on lower end rentals right now?

Paul Birkett · Answer

Thanks David - yes, Ill cover rental outlook in the next few days. If you are renting homes in the loweset price quartile you should be in for a good run!

have a good weekend

Paul

David Gilson · Answer

Thank you for sharing some real value! I look forward to your follow up and am wondering if specific data was given on the rental market including a forecast for rental prices?

Paul Birkett · Answer

Hi Donnie - you are right....I will cover that in the next few days in more detail

thanks for reaching out

Paul

Donnie Masters · Answer

The Kiplinger Letter also confirmed that long term rates will remain below 5% until at least 2017. One interesting note though, they believe there is a slight cooling right now as first time home buyers are not making up as large of a percentage of current buyers as they did in the past.

Thank you for sharing such an informative and educating post!