A strong economy that drove the housing demand beyond the availability of supply defined the first half of 2018 for the industry, according to a Carrington Mortgage Holdings webinar giving a mid-year snapshot of the housing market in 2018 while delving into the question of whether the market was headed for another bubble and foreclosure crisis.
Looking at the foreclosure market, Carrington said that the remnants of the foreclosure crisis were concentrated in a few states and fewer foreclosures were going to REO. Looking at the rest of the year, Sharga said that the market could end the year with historically low levels of mortgage delinquencies.
“However we need to make sure that lenders don’t get out over their skis again as it becomes more and more challenging to write loans in a relatively low refi market,” he cautioned. “It’s worth keeping an eye on the FHA portfolio also as their delinquency rates have gone up a bit even though they are at the low end of their historic rates.”
Looking at the second half of the year, Rick Sharga, EVP, Carrington Mortgage Holdings, who presented the webinar said that the balance of 2018 looked like a mixed bag. “The triple problems of limited inventory, home price appreciation, and rising rates are likely to keep existing home sales from being as strong as they should be,” he said. “Prices are going to continue to rise as are interest rates.”
Carrington projected the 30-year fixed-rate loan rates to end 2018 at 5 percent and home prices to rise 5-6 percent by the end of the year. While the forecast projected existing home sales to end the year at around 5.5 million, it said that new home sales would end at around 650,000.
The webinar also delved into the question of whether the market was heading into an affordability crisis or a housing bubble again. Explaining the characteristics of a housing bubble, Sharga said that prices rise beyond any rational explanation, followed by a plummet were classic symptoms of a housing bubble.
Home price appreciation has significantly outpaced wage growth throughout the recovery from the Great Recession and economists are beginning to identify multiple metro areas that have higher-than-average house-price-to-income-ratios according to Carrington. Additionally, lending standards appear to be loosening.
And even though market indicators did show signs of heating up, Sharga said that looking at all indicators as a whole, a bubble doesn’t seem to be a likely possibility. “From my perspective, we’re not in a housing bubble,” Sharga said. “Prices can’t continue to outpace wage growth by 2-3 times indefinitely. Although one-third of metros appear to be overpriced, on a national basis, home values are certainly not in bubble territory yet.”
Affordability too was better than it looked, though it was weakened.