By Bill Conroy
The housing market is buttressed
by a ‘Goldilocks’ economy
Bill Conroy is editor in chief of Scotsman Guide Media.
Reach him at firstname.lastname@example.org or (800) 297-6061.
still growing on an annualized basis “in the range of
3. 5 percent to 4 percent.”
“That’s because the market is so tight, even a margi-
nal softening in demand is not going to lead to a big
price drop. It will just soften home prices,” Khater says.
“But mortgage performance continues to be pristine.
On a vintage basis, when you look at the post-2010
[home-mortgage] vintages, they’re the best-performing vintages we’ve seen in 20 years or more.”
As we move forward into 2019, the interplay of
market forces in the housing industry appears to be
tipping slightly in favor of homebuyers on the affordability front, although the market overall still faces
some strong headwinds that could be a drag on
“With the economic improvement now more widespread, fewer people are moving to try to find work,
and I expect the situation to continue to normalize
over time,” Perryman says. That trend, he adds, should
help to alleviate some pressure on housing affordability. Working against that, however, is the nation’s
continuing draconian immigration policies, Perryman
“One factor which is going to affect the housing
market [and housing supply] is the shortage of labor
many construction firms are dealing with,” he says.
“Immigrants are an important element of the workforce across the economy, but particularly in construction and a few other industries.
“This situation is particularly acute in high-growth
states, such as California, Florida and especially Texas.
Addressing immigration issues is important to virtu-
ally all industries, with housing topping the list.”
respect to the nation’s housing market, that tradition
of planting one foot in the past and one in the future
offers us a glimpse of some good news and some
For the mortgage market, 2018 and the year ahead,
2019, will be defined by some broad strokes that
include the following buckets: home sales, home prices
interest rates, loan quality and housing affordability.
Those dynamics are in constant motion and in combination define the good and the bad of the market.
For 2018, those variables, according to several economists, have played out to create a market that was
quite favorable for homeowners — and not so favorable for homebuyers.
“This year appears to be another good year for
homeowners, with home values still rising quite
strongly,” says Lawrence Yun, chief economist for the
National Association of Realtors. “The high point is
that property owners are continuing to accumulate
wealth. The low points are that housing-inventory
levels remain very low, which is causing difficulty for
first-time homebuyers … and second, because of the
low inventory, prices are becoming unaffordable.”
Economist Ray Perryman, president and CEO of The
Perryman Group, echoes Yun’s analysis of 2018, saying
rising prices and shrinking housing supply, along with
an upward movement in interest rates, has resulted in
affordability “clearly becoming an issue.” Perryman
adds that another point of pressure in a housing mar-
ket that has “seen a fairly dramatic recovery in recent
years” is the movement of people to cities with hot job
“In areas such as Texas, the economy has been good
for a while,” he says, “but the influx of new residents
[from areas with softer job markets] has put notable
[demand] pressure on housing markets, with a recent
ranking placing San Antonio and Austin among the
most overpriced housing markets in the nation —
meaning that prices have risen faster than incomes.”
Freddie Mac Chief Economist Sam Khater points out
that the nation’s housing market began to stumble a bit
starting in late 2017, when home sales began to plateau,
“and it’s been that way ever since.” Khater adds that by
late summer 2018, purchase-mortgage application activ-
ity, “appeared to be growing again, but at very small
year-over-year growth rates of 1 percent to 1.5 percent.”
He adds that home-price growth also decelerated
in 2018, compared with the prior year — although it’s
If that issue can be worked out, Perryman adds, and
assuming the solid job growth continues, which pro-
motes strong housing demand, “it should be good
news for real estate markets” going forward.
Yun expects the economy to continue to be good
in 2019, hopefully with wages ticking upward, help-
ing to overcome any headwinds from rising rates. He
adds that “more inventory will be showing up in the
market, with the worst of the shortage over, and that
will help to moderate home-price growth, which will
be good for buyers.”
Still, Yun says it is likely high-priced coastal areas will
continue to face affordability challenges in the year
ahead, however. “Overall, in 2019, things should be
more normal compared to 2018, when it was clearly a
sellers’ market with low inventory,” Yun adds.
Khater points out that refinances as a percentage of
all originations are now at the lowest level “in 18 years,
so originators are hungry for volume, and where else
are you going to get it except for diving down the
[risk] spectrum on the purchase side.” He says even
though loan performance is now doing well, it really
has nowhere to go but down.
“What I worry about is a recession coming in while
underwriting continues to loosen and the market
remains unaffordable,” Khater adds. “I don’t envision
a 2007-type [housing-crisis] scenario at all, but it could
cause the market to slow down a fair amount.”
With that said, Khater stresses that we are now in a
“Goldilocks scenario,” adding that “things really can’t
get any better” with the economy.
“Over the shorter term, the next six to 12 months,
the economy looks great,” he says. “The question is
what happens in the sort of intermediate term.
“But there’s a long tailwind to the residential home-sales market as well, because you have millennials,
who are … going to be driving home sales, and first-time homebuyer growth particularly, for the next eight
to 10 years. So, we have a nice demographic tailwind,
irrespective of what’s happening in the economy.” n
“What I worry
about is a recession
coming in while
continues to loosen
and the market
Chief economist,Freddie Mae