Wednesday, December 30, 2015

Forecast Says U.S. Home Prices Are Overvalued, Will Peak In 2016

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By Nick Timiraos 
Wall Street Journal
The U.S. home price rebound has nearly run its course, and Americans should prepare for several years of home prices that don’t increase much, if they rise at all, according to a report published by bond strategists at Bank of America Merrill Lynch.

Most economists expect home prices to rise around 5% this year, before rising at around 3% over the next few years. Home price increases in recent years have been driven primarily by supply shortages, and some economists have said that prices could continue to outpace income or rent growth if more homes aren’t made available for sale.

To be sure, U.S. home prices have been especially difficult to predict in recent years. Many analysts prematurely called a bottom in 2008 or 2009, and others called for continued declines in 2012, after prices had started rising.

Analysts Chris Flanagan and Gregory Fitter concede that their view is “well out of consensus.” They say that U.S. home prices, after being undervalued relative to household incomes by around 6% at the end of 2011, have now rebounded to levels that are 9.7% overvalued. Their model uses the S&P/Case-Shiller home-price index.
They estimate that home prices will rise another 3% annually in each of the next two years, well below the 9.5% annualized growth rate since the end of 2011, when the market hit bottom. That would leave prices around 12% above the “fair value” level implied by household incomes. The model then forecasts modest declines in the following years, resulting in net annualized home-price gains that are flat through the middle of 2022.

So does this mean U.S. housing markets are in another bubble? If it is, it’s much less pronounced than in 2006, when home prices peaked at levels that were overvalued by nearly 59%, resulting in price declines of nearly 35% over six years.

Messrs. Flanagan and Fitter say that the regulatory framework enacted since the financial crisis in 2008 should largely prevent a return to the loose-lending standards that inflated the housing bubble. Against that backdrop, flat home prices between 2016 and 2022 “seems to us to be a fantastic outcome and exactly what policymakers had hoped for when establishing the new regulatory framework,” they write.

They also point to recent home-price indexes that show that the pace of increases has already slowed, suggesting that the post-crisis boom in home prices witnessed over the last two years “is most likely over.” A new period of “exceptionally low home-price growth” in which prices will rise by just 1% a year, on average, over the next eight years “most likely has started,” they write.

Why Arizona real estate may not be a good economic bet in 2016


If I were the type of person who extrapolated from data to form a conclusion I wished would be true I’d say that there will be much more money for Arizona entrepreneurs in the future than there has been in the past.
The reason is that an economic forecast for 2016 I attended last month predicted real estate would be a lousy investment in the foreseeable future. And if Elliott Pollack is saying that – he of the endlessly optimistic forecasts since the '80s – it must be grim for the money in Arizona that knows no other investment.

According to Pollack, next year will be just like this year. There’s no irrational exuberance and the debt ratio is low, as low as it was in the 1980s. Inflation is low, and oil prices are low. We are now down to importing only 21 percent of our oil, compared to 65 percent in 2005, which means as a nation we’re saving about $420 million a day on oil.

The dollar is stronger, mostly because the U.S. is the prettiest house on an ugly block. In times of crisis, people flee to the dollar, and that means foreign goods are cheap here, but our goods are expensive overseas. It’s a good time to go on an international vacation.

So there’s no recession coming.

However, the remaining debts are auto debt and student loans. In manufacturing, which largely means automobiles, inventory to sales ratios are out of line, which means cutbacks in manufacturing even though the average age of a car in the U.S. is 11.5 years.

For the first time in 40 years people have had to live within their incomes, because there are no bubbles, either in the stock market or housing, which would allow them to feel wealthy.
Moreover, the number of people in their peak earning years (45-54) is decreasing and won’t increase again until 2023. Only 26 percent of people 18 to 34 are married, so millennials won’t get to the suburbs with their kids until the mid 2020s.

Predictions for the 2016 Housing Market


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Thursday, December 10, 2015

Here’s what the housing and mortgage industry will look like in 2016

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One insider's look at 2016
http://www.housingwire.com
December 8, 2015

Lynn Effinger

Lynn Effinger is a veteran of more than three decades in the housing and mortgage servicing industries. He serves as president of Effinger Consulting and is the author of the inspiring memoir, Believe to Achieve – the Power of Perseverance.

As an interested observer and active participant within the housing and mortgage servicing industries for more than three decades, I have opined on many industry-related subjects over the years, and each year also present my own predictions for the coming year. Why not, since predictions are like opinions and noses… most everyone has one?

There are numerous reports and other predictions out there pointing to positive improvement for the housing sector in 2016, or that indicate there are signs that we will continue to experience a housing recovery next year (which has actually only been true in specific markets, i.e., the Bay Area, Manhattan, Southern California, Denver and Salt Lake City to name a few). My opinion is that although 2015 looked a lot like 2014, next year will not mirror them in this vital sector.

Before I list my predictions, it is important to note that everyone’s predictions are relative to the economy in general, and the housing sector in particular is subject to unforeseen domestic and global disasters, man-made and otherwise.

Therefore, since 2016 is shaping up to be a potentially chaotic, unstable and unprecedented year of upheaval around the world, and is perhaps the most important national election year of my lifetime, it is quite possible that my predictions will not come to pass after all.
That being said, the following are some of my housing and mortgage industry-related predictions for 2016:

1. Interest rates 
Interest rates will rise not only in December by at least one-quarter percentage point, but will continue to rise throughout the year for a total increase of more than 1%, due to actions of the Federal Reserve. Each uptick in mortgage rates will prevent many potential first-time buyers (and others) from qualifying for a loan. This will impact days on market of homes listed and will put pressure on listing prices to be reduced. If there are not enough first-time buyers entering the housing market there is less opportunity for existing homeowners to move up, which will also add days on market and impact pricing.
2. Luxury housing 
A continued drop in luxury home prices, as reported in HousingWire, will influence a similar drop in home prices of nearly all price categories, which, combined with higher interest rates as stated above, will have a negative impact on the health of the housing sector.
3. Mortgage credit 
Credit will remain tight in 2016, despite efforts by Fannie Mae and Freddie Mac to make more 3% down payment loans. This means that rental properties will continue to be in high demand causing ever increasing rents, which, like many mortgages today represent 40% – 50% of the income of renters and homeowners, which, with stagnant wages is unsustainable. This will negatively impact consumer confidence.
4. Consumer confidence 
Consumer confidence in general will be negatively impacted because of the continued lackluster growth of our domestic economy. Until there is a dramatic change in the direction of this country with respect to deregulation of businesses (especially small businesses) and the creation of meaningful full-time jobs, the housing sector will not gain the strength it has had in the past.
5. Delinquent housing inventory 
Inventories of delinquent and foreclosed loans have not disappeared and will only grow, further negatively impacting home prices in many markets, as reported by Ben Lane in HousingWire. In his article, Lane said, “Based on the number of past distressed loan sales and the amount of non-performing loan sales and re-performing loans that still exist on the books of Fannie, Freddie, HUD and commercial banks, even if the number of NPL and RPL sales stays at its current post-crisis high, there are still four years’ worth of potential NPL sales volume and six years worth of RPL sales volume left to sort out.”
And that is assuming, as Lane noted, that no more additional loans become delinquent, which is unlikely in the extreme.
With dramatic improvement in the quality of leadership in Washington and elsewhere, perhaps a more positive outlook is possible, but I can only call ‘em as I see ‘em.


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