Who's Afraid of the Big Bad Housing Market?
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Monday, April 14, 2014

As we (finally!) move into the spring season, hopefully we will begin seeing the inventory of available homes for sale rise. While a supply increase may seem like a positive sign for the economy, that market scenario could be viewed as a double-edged sword. Although mortgage rates have stabilized recently, we are seeing evidence of higher prices, a direct hit to affordability, particularly for first- time buyers. Increasing prices coupled with tougher mortgage qualification standards could potentially keep those important first-time buyers out of the market.

As you can see in the graphs below, inventories are running very low compared to the last 10 years. Alternatively, prices are trending substantially higher. Rising prices benefit the broader economy as consumer confidence builds because homeowners are less concerned one of their major assets will be in decline.

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According to a recent Wall Street Journal article, “sales of new homes last year rose by 14% from 2012, but the number of homes sold for less than $150,000, fell by 28%. Sales above $500,000 grew by 36%.” Clearly the higher priced homes (that first time buyers arguably would not be buying) are skewing the data to seem more positive than it may really be.

Further complicating things, the landscape as it relates to mortgage loans and their servicing continues to change as Washington’s efforts escalate to keep traditional banks out of this space. According to industry newsletter Inside Mortgage Finance, among the 30 largest mortgage servicers, non-bank firms held a 17% market share at the end of 2013, up from 6% at the end of 2011. It is fair to assume that percentage will continue to increase, which is a regulators’ nightmare.

It is impossible to predict how this story will end but for now, if home sales do not pick up, demand will likely be slow to flat throughout 2014. The uncertainty festers on.

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