Most analysts say that the mortgage industry will need a strong year for home-purchase loan volume in 2016 to make up for an expected large drop in refinances. So how is the housing market doing?
The latest flurry of housing data for October and November brought the usual mixture of good and bad news. The longer view suggests that the market continued to recover solidly in 2015, though some weakness and uncertainty remains, analysts told Scotsman Guide News. The outlook for 2016 is generally positive.
“We still have some vestiges of distress, but for the most part, 2015 was a very strong market,” RealtyTrac’s Vice President Daren Blomquist said. “I don’t know if normal is the right word, but it was a strong market after a soft patch in 2014.”
More economists are starting to refer to “a normal market” for existing homes. In 2015, the home-sales rate topped 5 million for eight consecutive months from March through October, before tumbling steeply in November.
Existing sales, which account for nearly 95 percent of all home sales, fell by 10.4 percent in the month to an annual rate of 4.76 million, according to the National Association of Realtors (NAR).
NAR economists say the big drop in November was likely a temporary blip caused by delays in closings at the end of the month due to the industry adjusting to the new federal consumer-disclosure rules under TRID. NAR is forecasting that sales will end the year 7 percent higher than in 2014. Sales also are projected to increase in 2016, although at a slower pace of around 3 percent.
“The big picture trend for the housing market is up,” NAR analyst Danielle Hale said. "It is moving up a little more sideways in recent months."
NAR’s pending home-sales index, which is based on signed contracts, consistently in 2015 predicted sales in the range of 5 million to 5.5 million, similar to the level in the early 2000s.
“It is right where we should be,” said First American’s Chief Economist Mark Fleming. “The existing-housing market, in terms of number of home sales, shouldn’t be 6 million. It should be right around 5.5 million, so we are pretty close there.”
Mortgage delinquencies and foreclosures are also steadily falling. CoreLogic reported 34,000 completed foreclosures in October, which remains higher than the monthly average of 21,000 before the downturn, but it's still down 27 percent from one year earlier. Seriously delinquent mortgages also have fallen to the lowest level since December 2007, the company said.
On a national basis, home prices rose 6.3 percent in November year over year, CoreLogic reported. Various other price studies have pegged the yearly gain at 5 percent to over 6 percent. Home prices have reached new peaks in a few markets. Black Knight Financial Services reported this week that its home-price index in October was just 5.3 percent below the 2006 peak for the index.
As home values have risen, the number of underwater homeowners — individuals who owe more on a mortgage than the house can fetch on the market — declined steeply. In the past third quarter, an estimated 256,000 homes regained equity.
Underwater homes accounted for 8.1 percent of all homes with a mortgage in the third quarter, down from 22 percent in third-quarter 2012. The diminishing number of underwater properties bodes well for future sales as many of these homeowners have been unable to sell since the downturn, analysts say.
Blomquist said overall home sales were on pace through November for the best year since late 2007. He also noted that applications for Federal Housing Administration (FHA) loans have risen dramatically, an indicator that credit has become more available and first-time homebuyers have been out buying houses.
Blomquist said that rising prices in some markets are a cause for concern, however.
“The red flag out there is affordability,” Blomquist said. “If interest rates go up too quickly, like to 5 percent, then that could really have a chilling effect because we are already at affordability ceilings in many markets.”
One weak link in the housing market has been a dearth of new-home construction, and thus lower sales of new homes. Sales have generally picked up through the year, but are running at half the rate of 2000 and 2001, when nearly 1 million newly built homes were sold. New-home sales rose in November to an annual rate of 490,000, which is far below the peak of around 1.2 million sales in 2005.
Rising interest rates also concern analysts. Forecasters are expecting long-term rates to rise anywhere from 30 to 70 basis points and end 2016 at 4.3 percent to 4.7 percent. Market analysts universally say that even a small jump in rates will hurt the market for refinances, but opinions differ on the impact on home-purchase sales.
In its latest forecast in December, the Mortgage Bankers Association (MBA) predicted that refinance volume will drop by nearly 36 percent in 2016, to $415 billion, whereas home-purchase volume will increase by 10 percent over the 2015 total to $905 billion this year.
Rising mortgage rates could put homes out of reach for some first-time homebuyers, Hale said, but the improved economy that has added roughly 200,000 jobs a month should cancel most of the ill effects of rising rates on sales.
“What we expect is that the recovering economy with the new jobs that are added, and income growth that we are finally starting to see, should be enough to help keep demand steady, but we won’t see the big pickup in existing home sales that we saw this year,” Hale said.