Taking the temperature on housing

Despite significant barriers to entry, many still believe buying a home is a good investment.

July 17, 2016

Housing proved influential during the postwar economy from 1945-1960, notes a blog post by the University of Groningen.

Economic growth during this time stemmed from a variety of sources: Automobile lending drove betterment, as did “a housing boom, stimulated in part by easily affordable mortgages for returning servicemen…”

Americans moved from the inner cities to suburbia. Mass production of homes “cut costs and allowed new owners to possess at least a part of the American dream,” the post says.

A Gallup poll anticipated the expansion with revelation “that nearly one in four Americans planned to build their own home.” Young consumers particularly influenced the trend: 37% of 18- to 29-year-olds planned to build a home after the war.

Average housing expenditures for aspiring homeowners hovered around $5,000—a $40 billion economic boost.

“Even discounting liberally for those whose plans will never materialize, this is a tremendously encouraging note for the U.S. postwar economy,” said Dr. George Gallup in his 1945 survey analysis.

Consumer hopes and beliefs surrounding housing combine with fiscal realities and government policy to impact purchasing behaviors, which in turn leads to economic growth or stagnation.

This week, we examine housing in 2016. How might various circumstances influence housing trends specifically—and ultimately, the economy?

‘Where thou art—that is home.’ --Emily Dickinson

First, a consideration of consumer sentiment.

Home Price Growth Expectations Decline, but Consumers’ Outlook on Housing Remains Positive,” proclaims the Federal Reserve Bank of New York’s Survey of Consumer Expectations Housing Survey.

In home price and rent expenses, consumers report the “mean one-year ahead expected change in home prices” for 2016 was 3.3%, almost one percentage point below 2015 and 2014 surveys. “The declines were broad-based across income levels and…geographic regions.”

Also, 59.2% of consumers believe acquiring property in their ZIP code is a good investment.

Still, attitudes are “polarized over the last three years” as respondents answer in greater numbers that buying a home is either a “very good” or “bad” investment.

On average, the likelihood of buying a home within three years rose to 63% from 2015’s 59.9%, although two-thirds of renters believe getting a mortgage is “somewhat or very difficult.”

Some impediments to borrowers securing mortgage loans might be large student debt and high rents.

Student Loans Hinder Housing Market ” notes a CUNA blog post that revealed 72% of student loan holders say educational debt prevents buying a home. And 50% say the postponement will last beyond five years.

Plus, “11 Million Americans Spend Half Their Income on Rent,” says Median rents on new apartments stood at $1,381 in 2015, “which means a renter would have to make at least $55,000 a year to be able to afford the rent.”

Typical renters earn $34,000 annually. An affordable rent would be $850. So, saving for a down payment is a challenge.

It may be no surprise, then, that “Pessimism About Prolonged Housing Affordability Crisis Is On the Rise,” according to the MacArthur Foundation.

Eighty-one percent of survey participants think housing affordability is a problem in the U.S. and 68% believe today’s buyers find acquisition of housing more difficult than for previous generations.

“Too many Americans…believe the dream of a decent, stable home, and the prospects for social mobility are receding,” noted Julia Stasch, MacArthur President. “Having a decent, stable affordable home is about more than shelter: It is at the core of strong, vibrant, and healthy families and communities…”

Survey results show consumers want affordability issues addressed.

‘The sun at home warms better than the sun elsewhere.’ –Albanian proverb

Nationally, the homeownership rate has slipped to 63.7% in 2015, “an unprecedented 10-year downtrend,” according to the Harvard Research Center in The State of the Nation’s Housing 2016. Reasons cited include tight mortgage credit, limited income growth, and small housing inventory.

“Even though a rebound in home prices has helped to reduce the number of underwater owners, the large backlog of foreclosures is still a serious drag on homeownership,” says the report.

Income inequality will be a factor going forward, even as the economy rebounds. “The question is not so much whether families will want to buy homes…but whether they will be able to do so,” says Chris Herbert, managing director of Harvard’s Joint Center for Housing Studies.

A further revelation from the report: In the absence of strong federal assistance, state and local governments struggle to grow rental assistance, as well as to incent affordable housing construction in areas with good educational and job prospects.

“Efforts fall short of need…” notes Herbert.

Important findings include:

  • Recovery continues as construction grows in both multi- and single-family homes, residential permits are up, and rental supply increases;
  • Home prices are on an upswing— the median price of existing homes is up 6.6% to $222,400 and median price for new homes is up 4.7% to $296,400;
  • Incomes are on the rise and strongest for younger consumers—although “household income disparities have increased sharply”; and
  • Down payments are a “significant challenge” for renters. A 5% down payment equals $11,100 for a median-priced existing home. The value of median assets for renters, in comparison, is $3,000.

Still, “most Americans still believe that homeownership is a sound financial choice” and “homeownership is not only desirable but also attainable.”

Meanwhile, “Homebuilder Sentiment Rises to the Best Level This Year,” says Business Insider. The National Association of Homebuilders’ June housing market index rose to 60 from 58, besting the forecast of a climb to 59.

“Rising home sales, an improving economy and the fact that the HMI gauge measuring future sales expectations is running at an eight-month high are all positive factors indicating that the housing market should continue to move forward in the second half of 2016,” notes NAHB chief economist Robert Dietz.

‘Home is the most popular, and will be the most enduring of all earthly establishments.’ --Channing Pollack, American magician

Finally, a glimpse at the lender’s perspective.

Almost No Lenders Plan to Ease Credit Standards,” says a recent article at Availability of mortgage credit dips, says the Mortgage Bankers Association, noting a three-month decline in the Mortgage Credit Availability Index for May.

About 90% of survey respondents to Fannie Mae’s second quarter Mortgage Lender Sentiment Survey say they do not plan to loosen credit standards “for at least the next three months.”

Lenders’ expectations to ease standards have slowly decreased since the fourth quarter of 2015. Any easing has been “moderate.”

“And for loans eligible for sale to Fannie Mae and Freddie Mac, the news is even bleaker, as only 4% of lenders on net expect to further ease credit standards” within three months, the article notes.

Lenders report a “significant increase” in demand for refinancing but believe that will slacken through the remainder of the year.

Lenders remain “cautiously optimistic in their market outlook,” according to Fannie Mae senior vice president and chief economist Doug Duncan.

History provides an interesting lens through which to view the current housing market. Clearly, things have changed since the postwar housing boom.

Do you know what influences your members as they consider homeownership challenges and opportunities?

What market factors influence your ability to serve them? How might you adapt and innovate?

LORA BRAY is an information research analyst for CUNA’s economics and statistics department . Follow her on Twitter via @Bray_Lora and visit the CUNA blog, The Research Roundup: Economic Perspectives.