Housing is putting up its best numbers in some time, but we can’t ignore some of its potential hurdles as the market changes.
Nearly every media outlet imaginable has jumped on the housing-recovery bandwagon, reporting on the numerous signs that housing has awoken from its long, painful slumber. Heck, even the Wall Street Journal, that most notoriously fickle of observers, has declared housing to be in recovery!
Yet, there remain outliers to housing’s success story that add smidgens of nuance to the recovery narrative; of course, we do not intend on being the Negative Nancy and raining on everybody’s housing parade, but we think it only fair to point out the four areas of the greater economy that could pose hurdles for the housing market in the coming months.
1. Rising Interest Rates – Interest rates are at historic lows, and they’ve fallen so dramatically that owning is now cheaper than renting in nearly every major metropolitan marketplace. Yet, it’s a certainty that rates will increase, and it would be foolish for any of us to become too comfortable with such low rates, because they are, you know, historic! And though rising rates will not necessarily derail the housing recovery, it’s worth factoring in what impact they could have.
2. Slow Employment Growth – Though the economy has been doing much better in recent months (it’s 165,000 new jobs in April was a particularly good sign), it’s still a far way off from a full recovery, and economists expect it will take five years of similar job growth for the economy to return to pre-recession levels of unemployment – and without a solid base of jobs, fewer Americans will be able to make home purchases.
3. The Changing Mortgage Landscape – According to recent readings, the U.S. government backs roughly 97 percent(!) of new mortgages via the FHA, Fannie Mae and Freddie Mac, but that overwhelming percentage will almost certainly change early next year when the FHFA, the entity that regulates Fannie and Freddie, adopts the qualified mortgage standards from the Consumer Financial Protection Bureau, a move that is expected to raise mortgage standards substantially. It remains to be seen whether private lenders will step up and fill that void, or whether lending will fall as a result of the regulations.
4. The Burden of Student Debt – Finally, there is the escalating burden of student debt. Totaling $1 trillion and now surpassing housing debt, student debt has become such a problem that, for the first time in years, consumers without student debt obligations are receiving mortgages at a greater rate than consumers with student debt. Typically, borrowers with student debt were considered a safer bet for banks, given that their academic degrees granted them higher-paying jobs, but the situation today – where the delinquency rate for student borrowers exceeds 30 percent – has reversed that scenario.
Agents, are you concerned? Will these hurdles play out in time? Comment below!