Displaying items by tag: housing

(New York)

The mortgage market has been doing quite well for a number of years. A steady stream of home buying and refinancings because of ultra low mortgage rates has kept things flowing. However, with rates rising, the refinancing part of the business is weakening for lenders. In 2017, 37% of all mortgage origination was from refinancings, down from 72% in 2012. Accordingly, the overall mortgage market fell by a whopping 12% in 2017. In order to combat the fall, lenders are pushing home equity lines of credit and adjustable rate mortgages.

FINSUM: This is a huge part of the mortgage market that is falling away. This will mean lower earnings for lenders. One wonders when the rising rates will start to curtail purchases. It seems inevitable.

(Atlanta)

There is a very particular kind of housing problem currently affecting the US—a serious shortage of homes at the lower end of the cost spectrum. Not only is inventory thin, but the housing stock available for first time buyers is in poor condition and prices are rising quickly (10% in the last year). The average starter home on the market is 9 years older than it was in 2012 and is 2% smaller. That price growth is outpacing other categories.

FINSUM: So the big worry we have is that with all the price appreciation happening, prices are more primed to fall considerably as rates hit a tipping point where they start to curtail mortgage borrowing.

(New York)

While some see the housing market as being in the middle of a long push upward, some see a lot of risks on the horizon as rates rise. In particular, mortgage rates look set to move strongly higher as the Fed keeps hiking rates. 30-year mortgage rates just hit a four-year high and are already hurting refinancings. Not only will the rates hurt new buyers, but they also keep people from moving, which could create bottlenecks in the system. The rise in rates is also challenging because home prices have risen sharply.

FINSUM: So the big point which counteracts all this negativity is that Millennials are entering their home-buying years, so there is a large pool of demand to support prices. The higher end of the market may be where things are weakest.

(New York)

With rates looking likely to rise there are increasing concerns that the US housing market might be in for a rough patch. Rising rates mean more expensive mortgages, and combined with the lowering of the interest deduction threshold in the new tax package, real estate could be in for a rough ride. However, the opposite may be the case. The reality is there is low inventory and little new construction, leaving many buyers chasing a shortage of homes. Prices have risen steadily since the Crisis, but with the exception of a few coastal markets, have not surged, meaning pricing still looks reasonable. “Housing is in the third or fourth inning of a nine-inning game”, says one portfolio manager.

FINSUM: All the risk is in mortgage rates. If the Fed hikes very aggressively then it will hurt the market, but if things keep moving at this leisurely pace, housing will likely do just fine.