For Housing Market, a Case for Optimism

AMELIA ISLAND, FLA.–Mortgage Bankers Association Chief Economist Mike Fratantoni says for the economy and the housing markets, the big picture looks pretty good.

“We have raised our outlook on economic growth,” Fratantoni said here at the MBA Independent Mortgage Bankers Conference. “Overall, the tax bill will be a positive for the economy.”

For the first time in a while, talk of an “overheating” economy has entered the picture, Fratantoni noted. As inflation flirts more with 2 percent growth, Fratantoni said, it creates a challenge for the Fed.

This is one reason why MBA revised its forecast for the Federal Open Market Committee raise rates four times this year, instead of three. “One result of that will be mortgage interest rates approaching 5 percent by the end of this year and exceeding 5 percent in 2019 and beyond,” he said.

This also bodes well for the home purchase market; Fratantoni sees slow but steady purchase origination growth. “We expect this growth to continue over the next few years,” he said. “We could see an early start to the spring home-buying season.” Refinances will be a different story as the 30-year fixed rate continues to tick up.

Fratantoni said job growth continues to drive the housing market. “2017 was another strong year, despite lower numbers,” he said. “We’re in an economy where even a 100,000 per month job growth rate is enough to keep the unemployment rate at its current level…employers are starting to compete for qualified workers.”

Job growth, in turn, is driving wage growth. “Our expectation is that wage growth will continue as the unemployment rate moves below 4 percent,” Fratantoni said.

As the Fed winds down its purchases of mortgage-backed securities, it will create upward pressure on interest rates and Treasuries. “We could be as much as a full point higher in the federal funds rate by 2019,” Fratantoni said.

Declining inventories continue to hamper home sales–the National Association of Realtors yesterday reported just 1.48 million homes available for sale, the lowest number in years. “People are not putting their homes up for sale, and there are an increasing number of consumers who want to buy homes,” Fratantoni said. “We are simply not meeting demand, and that is going to continue to drive up home prices.”

On the home-building front, labor shortages are holding them back. “Nearly 82 percent of home builders are reporting an inability to find skilled labor,” Fratantoni said. “Builders are complaining that their crews are getting hired away before they can complete the current jobs.”

Despite these issues, Fratantoni said he is not worried about housing “bubbles.” “What I am concerned about in these high-priced markets is that we are pricing out potential buyers,” he said. “This is a supply problem, not a price problem.”

MBA Vice President of Industry Analysis Marina Walsh said for IMBs, opportunities continue to exist. “Independent mortgage banks are clearly becoming the driving force behind mortgage loan originations,” she said.