Jann Swanson | Mortgage News Daily | Dec 30 2014 | link
It has been a long time coming but CoreLogic says the improving employment numbers are strongest among precisely the demographic the housing industry has hoped for, the age group most likely to be first time home buyers. The country has been waiting for several years for so-called Millennials – those born roughly between the early 1980s and the early 2000s – to begin forming households and buying homes, but impeded to some extent by poor employment prospects and high debt levels they have delayed both of those steps.
CoreLogic’s 2015 Housing Outlook notes that the post crisis economic expansion, just ending its fifth year, is now seeing steady improvement in the most important of the economic fundamentals, such as consumption and capital investments. Among them employment grew at an average of 2.0 percent year-over-year in the three months ended in November, the strongest growth since March 2006. One subset of Millennials, those now between 25 and 29 years of age, had employment growth of 3.0 percent. Not only have their employment prospects improved more than the population as a whole, but CoreLogic says younger households exhibit more mobility and higher marginal tendencies to consume from income, so stronger employment growth should manifest itself in higher spending.
The company sees this playing out well for housing. Home sales, it says, will increase by 9 percent in 2015 and housing starts by 14 percent while home price growth is expected to moderate. CoreLogic sees overall housing sales increasing to 5.8 million from 5.3 million this year while there will be 1.1 million housing starts. While the company calls the latter jump in construction “healthy” it says it is still 23 percent below the 1.45 million starts the county has seen on average over the last 50 years.
Plummeting oil prices, down about 45 percent since June, helped economic fundamentals and will be a tailwind for growth going into next year. CoreLogic says U.S. households spend more than $1,800 on energy-related costs annually and 22 percent of that energy consumption is due to residential real estate so it isn’t just the driving-related savings that will put more money in consumers’ pockets, the drop will also reduce energy-related expenses for residential real estate.
Interest rates, despite some ups and downs over the last 18 months, remained relatively low but home prices did not. “It is clear that the low-rate environment has benefited home prices,” the company says, “as price-to-income and price-to-rent ratios are high. This indicates home price growth going forward will be fairly muted.”
As to all of the talk about “opening the credit box,” CoreLogic says it has been just that, talk. “Analyzing the most recent data on the three main drivers of underwriting (debt-to-income ratio, loan-to-value ratio and credit scores) reveals that purchase underwriting remains modestly tight and is not loosening yet. While there has been clarification on GSE loan put-backs and new low down payment products, the impact of both will be fairly modest because the weak originations market reflects not just a modestly tight supply of credit, but very weak demand.”
CoreLogic said two clear trends are emerging as 2015 nears. First, those markets with the strongest sales and the highest home price appreciation are those with the strongest economies, particularly those tied to technology and energy. This, of course, makes dropping energy prices a two-edged sword. Of the top 10 housing markets with the greatest price appreciation four, San Francisco, San Jose, Austin, and Seattle, have high concentrations of technology industries and employment growth of 2.8 percent. Two others, Dallas and Houston, are being driven by strong energy economies and the attendant spurt in household growth over the past few years.