How is the housing market poised at the end of the first quarter of 2018 and what can one expect in the near and long-term future? A webinar about The State of the U.S. Housing Market by Carrington Mortgage Holdings hosted by Rick Sharga, EVP, Carrington Mortgage Holdings looked at the various indicators that are affecting the housing market today and how they would impact it in the future.
Starting off with an overview of the overall U.S. economy, Sharga said, “Inflation is something that people are watching more closely.” The solid numbers posted by the economy have meant that the Fed is now watching for inflation to get to a certain level and put brakes on the economic stimulus to keep it there. The strong job numbers have also helped boost the overall economic indicators as more workers are re-entering the workforce.
The market might be finally putting the foreclosure crisis behind it according to the report. “We are seeing foreclosure activity falling rapidly with the activity concentrated only in a handful of states,” Sharga said.
Citing data from Black Knight’s recent Mortgage Monitor Report the report said that delinquencies and foreclosures starts were declining with total U.S. delinquency rates at 4.3 percent and total U.S. foreclosure inventory rate falling to around 0.65 percent. The total delinquency rates were a little higher than expected due to the natural disasters of 2017 but they were showing a decline on a month-over-month basis. “There simply won’t be many distressed properties going around by this time next year,” Sharga said. “You won’t see many people in foreclosure until late 2019 or early 2020.”
Moving on to the housing market, Sharga pointed out that existing home sales were off to a weak start in 2018. “Existing home sales are still well away from the record numbers we saw during the housing boom of 2006,” Sharga said. While existing home sales stagnated at 5.4 million by the end of 2017, we should be closer to 6 million existing home sales by the end of 2018.
The culprit? Inventory shortage. According to Sharga, existing home sales inventory was a little under four months’ supply at present. “A significant percentage of existing home sales inventory is not for sale right now, which is driving inventory shortage,” Sharga said, citing various factors such as a psychological hangover where people were afraid to put their homes on the market because they wouldn’t be able to sell it for enough to buy a new home, and the fact that homeowners were staying in a home for a longer period of time, with the average being 10-11 years today, compared to 6-7 years in the previous years.
This scarcity was also driving prices higher, with Black Knight’s HPI estimating a 6.6 percent home price appreciation in 2017 and a median home price of around $283,000. Despite these price increases, Sharga said that affordability was better than what people thought. “The prior peak was reached in 2006, and since then we’ve had 12 years of wage appreciation and even with the higher interest rates today, we still have lower mortgage rates than we had in 2006 which was in the 6-7 percent range,” Sharga said.
While the inventory crisis is not as acute for new homes, sales for these were also lagging in the first quarter of 2018 according to the report, as labor, capital issues, and regulatory constraints continued to restrict builder activity leading to weak housing starts.