Housing Outlook: The Forecast Calls for Ongoing Uncertainty
A recent industry webinar unpacked useful intel on how housing markets seem headed. The expert analysis reveals an outlook filled with crosscurrents and complexity ahead.
On one hand, homes remain historically unaffordable for many buyers at current rates and prices. Sales volumes plunged 40% from pre-pandemic norms, demonstrating diminished demand. Tepid purchase lending continues to decline as well.
Yet home values show signs of reaccelerating after decelerating earlier this year. Appreciation outpaced 5% annually in October, and projections foresee ongoing gains thanks to ultra-lean inventories still constraining supply.
This mismatch hints at a bumpy road ahead. While moderating rates could jumpstart activity, a glut of shadow inventory awaits listing if owners feel confident selling. Such an influx may finally satisfy unsatisfied buyers awaiting more choices.
But flooding supply could also spark declines after years of appreciation, especially if layoffs balloon or outmigration patterns shift. These countervailing undercurrents yield a foggy horizon filled with doubt.
Essentially, forecasters see inconsistent markers - hesitant buyers and hesitant sellers, stunted sales yet sturdy prices, hesitant construction, and hints of hidden supply. Such swirling crosswinds signal an unsettled market mood ahead.
Where housing travels next likely hinges on how these myriad variables interact and potentially upset today's equilibrium. Forecasting becomes dubious amid so much complexity and uncertainty. For now, temperamental skies remain the clearest forecast.
Here are the key takeaways from the webinar :
Key Takeaways
Purchase volume in 2023 weeks 46 & 47 was down 40% from the same week in 2019.
While August 2023 agency purchase loan volume increased by 10% from July 2023, it is still below August 2013, the lowest level for that month of the series.
We are expecting the total agency loan volume (refi and purchase loans combined) to decrease to 125,000-150,000 by January 2024. This would be a 15%-30% decline from the series low (combined volume of 175,000) set in January 2023.
Year-over-year (YoY) home price appreciation (HPA) has begun to accelerate.
August 2023’s YoY HPA was 4.5%, up from 3.8% a month ago but down from 10.2% a year ago. October 2023’s YoY HPA was 5.1%, up from 5.0% a month ago but down from 7.8% a year ago.
YoY HPA bottomed out in April 2023 and is expected to continue rising through December 2023 and beyond based on Optimal Blue data.
Months’ remaining supply was 4.0 months (not seasonally-adjusted) in October 2023. Housing inventory continued to run below pre-pandemic levels, which helps explain the robust YoY HPA.
Light-touch Density (LTD) unleashes swarms of activity by property owners, small businesses, and workers.
Examples include reduced minimum lot size (Houston), legalizing low rise multifamily (Seattle), legalizing accessory dwelling units (Los Angeles city).
Philadelphia in 2000 enacted a tax abatement program on new construction for ten years which immediately unleashed activity that remained resilient during downturns.
LTD and the swarms of activity by property owners, small businesses, and workers are killed by policies that violate the Keep It Simple Stupid (KISS) rule.
The latest trends in appraisals and appraisal waivers.
The share of appraisal waivers for both GSEs combined for September 2023 stood at 13%, up 0.3 ppts. from last month but down 36 ppts. from its series’ peak in March 2021. In August 2023, shares for Fannie and Freddie converged for the first time since June 2021 and have moved in lock step since then.
The introduction of the ACE+PDR and VA+PD programs subsequently reduced waiver shares, but the data show that both programs have not picked up the entire slack, suggesting further policy changes and/or slow market pick-up.