Fitch: In Midst of Multiyear U.S. Housing Recovery, Some Minor Cracks
Fitch Ratings, New York, said at the midpoint of 2016, the U.S. housing market is “relatively robust,” although it noted some cracks in the foundation have surfaced.
“The housing recovery had been long delayed and has so far been relatively healthy, but irregular and more moderate than typical,” Fitch said. “Challenges remain, including restrictive credit qualification standards and narrowing affordability.”
Fitch noted various housing and related statistics bottomed in early to mid-2009. Since then, for a time, the on-and-off, then on-again nature of the federal housing credit spurred, or at least pulled forward, primarily entry-level buyer housing demand.
Highlights of the report:
–2017 is shaping up to be a mirror image of 2016 for homebuilders. “With interest rates set to rise further, demographics and employment growth should be at least as positive next year,” Fitch said. “This bodes well for first-time buyers as they are representing a higher portion of housing purchases with qualification standards loosening further. One potential challenge for the housing recovery is labor shortages, which are more acute than usual for this stage in a recovery and could persist and become more widespread.”
–Home prices nationally appear to be on solid footing as far as residential mortgage-backed securities is concerned, though some overvalued regional pockets are growing. Fitch noted home prices in San Francisco, Phoenix and Las Vegas have become nearly 15 percent overvalued, while most major markets in Texas are overpriced by 10-15 percent.
–Another headwind for some undervalued housing markets is shadow inventory. Fitch reported New York’s distressed inventory in particular remains three times higher than the level was in 2007, and will remain a drag in New York through 2018.
“We believe this year looks to be another year of expansion for housing,” said Fitch Director Robert Curran. “If mortgage rates should rise sharply from current levels or credit terms tighten further, then [our] housing forecast for 2016 could turn more pessimistic. Of course, should the economy experience another recession, the housing downturn would resume.”
Additionally, Curran noted although housing inventories seem to be relatively slim, “an economy slipping into recession could inflame issues, such as negative buyer psychology and home price erosion relatively quickly, which can lead to a falloff in demand and bloated inventories.”
