Sep 12

Analysts Are Still Bullish on Housing

Analysts Are Still Bullish on Housing

Analysts Are Still Bullish on Housing. Image courtesy of ddpavumba / FreeDigitalPhotos.net

Analysts Are Still Bullish on Housing. Image courtesy of ddpavumba / FreeDigitalPhotos.net

A slowdown in price growth and in the housing market hasn’t prompted Capital Economics analysts to change their housing forecast. They still see growth ahead for the sector.

Paul Diggle, property economist at Capital Economics, says he remains bullish on the housing market and mortgage growth in the coming months, and that the declines in home-price growth and the sluggish employment picture are not reason for concern that the housing recovery is headed for derailment.

Diggle says that economic growth is running at more than 3 percent on an annualized basis and that several indicators are pointing to a labor market on the mend.

On the housing market, Diggle points to mortgage affordability: The decrease in home prices has helped the value of homes to improve for many home buyers. Mortgage rates continue to hover at yearly lows, with the 30-year fixed-rate mortgage averaging 4.25 percent in the most recent week.

Still, Diggle says that the average mortgage payment in August accounts for 16.3 percent of median incomes, so mortgage rates aren’t significantly altering mortgage affordability. But he notes that the rise in existing home sales back to historical norms is important. Existing-home sales account for about 90 percent of all sales.

“They increased by 2.4 percent month-over-month to 5.15 million annualized in July, the fourth consecutive rise,” Diggle notes. “Existing home sales per capita are now in line with long-run norms.”

However, new-home sales and mortgage lending remain flat, hampering the housing recovery. Mortgage applications for home purchases dropped for the third consecutive month in August, reaching the lowest level since 1995.

“Yet these data don’t sit comfortably with the net balance of 45 percent of respondents to the Fed’s Senior Loan Officer Survey who saw mortgage demand strengthen in the third quarter,” says Diggle. “The same survey showed that a net balance of 18 percent of lenders loosened mortgage credit conditions.”

He believes the latest loosening in lending should help home sales, particularly new-homes sales, to strengthen in the coming months.

“Indeed, we believe that the majority of the increase in the housing market over the next few years will come from the new-homes sector,” Diggle says.

Source: “Capital Economics Remain Bullish on Housing,” HousingWire (Sept. 10, 2014)

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