The market for single-family homes is still a long way from a full recovery, though it’s come a long way from the housing crash.
“Some of the distortion from the recession and the financial crisis is going away,” said Sam Khater, deputy chief economist for CoreLogic SafeRent at “How Real is the Single-Family Recovery,” a session at the 2015 NMHC Research Forum, held April 1-2 in Washington, D.C.
The number of home sales is still low and demand for mortgage credit is still very weak, even though home prices continue to recove,r and far fewer home loans are delinquent or overleveraged. Stagnant wages and the high cost of housing may be holding back potential buyers.
Sales volume homes still low
Home sales are improving, helped by low interest rates in the latter half of 2014, but the volume of sales is still much less than before the financial crisis. Very few people are applying for homes loans -- the volume of first lien purchase mortgage applications was about the same in 2013 as it was in 1993, according to data from the Federal Reserve.
Potential home buyers may have difficulty getting a mortgage. “Underwriting is very tight and really has not improved,” said Khater. Corelogic’s Housing Credit Index shows underwriting is still as tight today as it was in the depths of the financial crisis.
However, very few potential buyers are even attempting to get financing. “We can talk about the supply of credit all we want, but borrowers are really not applying,” he says. “The demand just is not there.”
The high cost of for-sale housing could be blocking potential home buyers - especially first-time home-buyers. The percentage of home buyers who are buying their first home is now about 33 percent, down from a historically normal rate of around 40-to-42 percent. Stagnant incomes put high-cost housing further out of reach for potential home buyers. “Housing is just a symptom of the stagnation in incomes,” said Khater.
If the job market continues to improve and consumer confidence continues to rise, the demand for for-sale housing is likely to benefit. “We are really starting to get job growth,” said Khater. The recent drop in oil prices has also had a huge effect on consumer confidence. “There is a very strong correlation between consumer confidence and home sales, especially new home sales.”
Healing from the housing crash
Home prices are still growing significantly faster than the rate of inflation overall - but not at the breakneck pace of 2013 and early 2014, when home prices grew at a rate of more than 10 percent a year. The rate of increase slowed for most of 2014, stabilizing towards the end of the year. Home prices were up five percent in January 2015 compared to the year before, according to data from CoreLogic.
Prices rose almost 10 percent in markets with strong job growth like Houston, Denver, Oakland and Dallas over the 12 months that ended January 2015. “Today when you look at the top markets, they really reflect the fundamental strength of the economy,” said Khater.
Mortgage performance continues to improve. About four percent of all home loans are now late in their payments by 90 days or more. That’s down from eight percent during the crisis.
Nearly all of the loans now in trouble were made before the crash. “If you look at the most recent vintages, the 2014 vintages, they are pristine, by far the best on record,” says Khater.
The percentage of homes loans that are now larger than the likely value of the home is now about 10 percent, down from a peak of roughly 25 percent. “Normal is about three percent... There is a long tail to how long negative equity will remain elevated,” said Khater.