WASHINGTON (MNI) – The U.S. housing market appears to be stuck in low-gear as a hoped-for bounce in the second quarter is yet to be seen and some economists are now conceding that the more modest trajectory will continue throughout the year.
“We originally expected this to be the breakout year that would show that the housing recovery was on track … However with the slower start to the year we have seen a lot of numbers scaled back,” Wells Fargo Senior Economist Anika Khan told MNI. “I think the overall story is still mixed and we are looking for an overall improvement” Khan said.
Khan said a moderation in home price gains was expected after a seeing double digit gains in 2013, but that applications to purchase homes has been sluggish.
Data from the Mortgage Bankers Association show that mortgage originations totaled $226 billion in the first quarter of 2014 which compares to $524 billion the first quarter of 2013 and they are forecasting a total of $1.014 trillion for all of 2014 which is $741 billion less than last year. The Case-Shiller Home Price Index report that was released on Tuesday also is starting to point to a possible slowdown as prices fell 0.3% on a seasonally adjusted basis in May.
“The acceleration out of the recession – the demand for housing that we saw has essentially ended,” ITG Chief Economist Steve Blitz said in an interview.
“The housing market that we have is okay to the extent that it reflects the economy we have … I think housing is going to follow the economy and not lead it,” Blitz said.
The latest report from the Bureau of Economic Analysis advance GDP estimate showed that the U.S. economy expanded 4.0% in the second quarter after contracting 2.1% in the first quarter and many economists are now hoping for 3.0% growth in 2014.
However, housing numbers are still ho-hum. The pace of new home sales averaged 419,000 between April and June after averaging 431,000 in the first three months of the year and 446,000 in the final three months of 2013. The National Association of Realtors said sales of existing home rose 2.6% in June to a 5.04 million sales pace but were down 6.3% from a year ago and NAR Chief Economist Lawrence Yun has said that inventory continues to be a constraint.
“New home construction needs to rise by at least 50% for a complete return to a balanced market because supply shortages – particularly in the West – are still putting upward pressure on prices,” Yun said during a press conference earlier in the month.
While the kind of growth that is needed to give the economy a jolt is yet to be seen, the decay left by the housing crash is clearing.
Numbers from RealtyTrac which tracks mortgage foreclosures along with other housing data showed that were a little over 100,000 foreclosures in June which is the fewest since July 2006 and is a milestone because August 2006 is often considered the precipice of the housing crash.
RealtyTrac Vice President Daren Blomquist said he believes foreclosure activity will begin to normalize in the first quarter of 2015 – which would be about 90,000 foreclosures per month.
“We have all along have been expecting 2014 was going to be a reality check,” Blomquist told MNI adding that “the market is finding a more normalized and sustainable rhythm” and he expects year-over-year home price appreciation will be in the single digits year-over-year in 2014 after reaching double digits in 2013.
Economists and analysts also continue to point to structural and demographic changes. Banks which have been slapped by lawsuits worth billions of dollars by regulators are wary to lend and Millennials who represent typical first-time home buyers are failing to start new households.
The NAR said first-time home buyers represented only 28% of existing home sales in June which is well below the 40% historical norm.
A Fannie Mae survey found that the percent of young adults between 18 and 34 living with their parents increased from 27% between 1990 to 2006 to 31% in 2013 and that school expenses or not making enough money were the most common reason given.
The New York Federal Reserve estimates that there is between $900 billion and $1 trillion in student debt outstanding.
The Federal Housing Administration has also made the cost of low down payment loans more expensive by raising the price of insurance. The cost has gotten high enough that some borrowers that would normally borrow from the FHA are borrowing from the Fannie Mae and Freddie Mac instead with the help of private mortgage insurance – however that too may become more expensive as the Federal Housing Finance Agency is set to tighten mortgage insurer standards which will probably push borrowers on the fringe between conventional loans and FHA back into FHA.
Yale Professor and housing expert Robert Shiller said during a CNBC interview after the release of the Case-Shiller Home Price Index that the tiny price decrease seen in June “could be a turning point” and that there is evidence that the housing market is weakening.
“This might be a little downward blip and it might continue going up, but I cant think it will go up much more – maybe 10% before a correction,” Shiller said.
–MNI Washington Bureau; tel: +1 202-371-2121; e
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