Providing custom mortgage credit reports, related services & technology solutions for over 75 years.

800-243-0120

Search Avantus.com

Housing market still going strong despite concerns

July 5, 2018

The shape of the housing market has shifted dramatically over the past several years and is likely to continue doing so for some time to come. A big part of this shift - especially in the past 12 months or so - has come in the form of declining affordability, which was long considered a driver of significant activity. However, some housing experts believe that even diminished affordability would not actually lead to a downturn in shopper interest for at least a little while longer.

"People are only starting to notice long-existing conditions."

Fears about the "overheated" housing market - that is to say, that home prices have been increasing at rates too high to be sustainable - have been growing in recent months, even as the rate of growth slowed, according to Yahoo Finance. However, this has been technically true of the market at large for years, and only now that prices have surpassed all-time highs - about a decade after the market first crashed - people are only now starting to really notice the long-existing conditions.

Things to keep in mind
Consumers may now be understandably concerned that home prices have surpassed the all-time records seen in the market. However, it's worth noting that, on an inflation-adjusted basis, houses are still relatively cheap in comparison with pre-recession norms, the report said.  Moreover, because many Americans have seen their earning power grow alongside the improving economy - and many young people have been able to come of age and move into the market - it's unlikely that demand for properties is going to abate any time soon.

Likewise, mortgage rates, while up from the record lows seen at a few points in the past several years, are still below pre-recession and all-time average levels as well, the report said.

"The market has been looking overheated ever since 2012 when we saw the upsurge that has been going on now for almost six years," Nobel laureate and Yale economics professor Robert Shiller, who pioneered the Case-Shiller Home Price Index, told Yahoo Finance. "And it looks like it's still going up. It's been going like that since 2012. Home prices have come down a lot, but they are getting back up. I like to put things in real terms. In nominal terms … we've surpassed 2006, which was the peak. But in real terms, we're still fairly far below the 2006 peak. I don't think we're in the same enthusiasm still."

Changing demographics
Meanwhile, though the two youngest groups of adults that are likely to own homes have only recently begun to rise again after declining steadily since the housing market's peak in the mid-2000s, according to the latest State of the Nation's Housing report from the Joint Center for Housing Studies of Harvard University. This decline was observed across nearly all age groups, though older generations were far less likely to be hit hard.

In 2004, the youngest age group nearly reached a 50 percent homeownership rate, and since 2015 it has been hovering below 40 percent. In 2017, it ticked up for just the second time since the all-time peak. Likewise, homeownership among those 35 to 44 fell from nearly 70 percent at the all-time peak some 14 years ago to less than 60 percent in the mid-2010s, and last year rose for the first time since the market crashed.

Indeed, both anecdotally and statistically, it's a difficult housing market for millennials to enter in most parts of the country, according to The Huffington Post. Plenty of polls have shown that today's young adults broadly value homeownership but the path to actually attaining it isn't easy. Many young adults still struggle with tens of thousands of dollars in student loan debt, relatively low-paying jobs (especially in comparison with previous generations) and tight housing markets in which lower-priced starter homes are subject to intense competition due to a lack of availability.

However, because of how much they want to enter the market, it's likely that they're going to build up enough momentum as a group to eventually break through and reshape the housing market at large, the report said.

"Contrary to popular opinion, millennials are not buying avocado toast instead of saving for a down payment," Jessica Lautz, director of demographics at the National Association of Realtors, told the site. "They're paying their student debt. Somebody with $41,000 in student debt is going to be buying something far away with a long commute, or in a bad school district, or something too small. They're not going to be able to stay there for long."

"Lenders will continue to enjoy growing interest in mortgages."

Another shift?
For much of the period since the housing market collapsed, the mortgage industry was largely fueled by current homeowners refinancing their existing loans, as rates hovered at or near all-time lows for years, according to CNN Money. But as rates have risen and consumer demand for homeownership grew, that balance has shifted back to a mortgage market being dominated by purchase loans. As such, it's likely that lenders will continue to enjoy growing interest in mortgages even as rates rise in the months ahead.

The only thing that could potentially hold back broadening interest in purchase mortgages is the still-constricted inventory of properties for sale, especially for those previously mentioned low-priced starter homes, the report said. If young people don't have enough options to get into the market in the first place, they are necessarily far less likely to pursue the mortgage process.

And when they do feel it would be wise for them to enter the housing market, shoppers - of all ages - would be wise to crunch the numbers and do more to determine exactly how much home they can afford. Working with professionals on both the lending and real estate side will help them determine the best path forward given their unique financial circumstances.

 

 

 

If you liked this article, consider signing up for our weekly Buzz recap email! Sent every Friday morning, it's a quick way to catch up on all the industry news and happenings at Avantus. Click here to sign up!