The post-bubble housing market have many moving parts, but what components will have a lasting impact on its future?
Many things go into a housing market – so many, in fact, that it can prove dizzying keeping track of them all. From interest rates, to prices, to regulatory policies, to lending standards, it’s a never-ending process navigating the many canals and arteries of the marketplace.
In the current housing market, though, there are several shifting components that will impact many of those aforementioned details, and CoreLogic recently described four of them in its latest MarketPulse report – and they all suggest that it may be a bumpy road forward for the housing market.
1. Upending Expectations – In a normal housing recovery, young consumers exit the rental market and become first-time homebuyers, propelling the market forward and onto stable footing; unfortunately, that has not been the case with this current recovery. Thanks to a number of factors – delayed marriages; delayed families; unprecedented levels of student debt; strict lending environments; insufficient savings for downpayments – much less Millennials are entering the housing market, and are opting instead to stay renters. How much is “much less”? Consider that when Baby Boomers were aged 25 to 34, their homeownership rate was 51.6 percent; the rate for Millennials in the same age? just 37.9 percent. And all the while, Baby Boomers continue to retire in record numbers and downsize.
2. Stagnant Growth – Perhaps the biggest factor keeping Millennials on the homebuying sideline is the stagnant recovery; indeed, unemployment, underemployment and slow wage growth are all holding back potential homebuyers. As CoreLogic President/CEO Anand K. Nallathambi put it, “Until we see a sustained pathway to job creation and income growth, we will continue to see potential homebuyers hesitate to take on mortgages and purchase homes.”
3. Low-Interest-Rate Consequences – Record-low interest rates became a way of life for a few years after 2008, with the Fed pursuing more aggressive policies by the year to drive down rates, spur lending and resuscitate the housing market. Except, those low interest rates inspired many more consumers to refinance their mortgages than buy homes, and as a result, we’re now seeing the “rate lock-in” phenomenon, where homeowners prolong listing their home to hold onto their low interest rate…thereby keeping inventory low.
4. End of an Investor-Driven Era – Though investors are still active in a select number of housing markets, they have largely exited stage left, with soaring home prices and rising interest rates driving them from the marketplace. First-time homebuyers and move-up buyers, CoreLogic suggests, will need to fill that void, but as we’ve detailed above, that’s easier said than done.