Early in this economic cycle, one of the more controversial calls I made was that the homeownership rate would bottom at 62.2% – 62.7% in this cycle (2008 – 2019). This prediction was based on three facts: First, demographics during this period supported renting not home buying. Our demographics were either too young or too old to be in the market to purchase homes. Second, over 8 million homeowners were delinquent on their mortgages, and once they lost their home titles would join the ranks of renters. Third, home-ownership and purchase applications were high and could not be sustained at that level with the weaker demographics for homeownership and no exotic loans to boost demand.
In the last few years, some pundits have been saying that expecting ownership to stay at 62.2% was too bullish. Today, we are less than a year away from the end of this cycle, and the homeownership rate has not gone below 62.2 %. The lowest rate we have seen so far is 62.9%.
Now, I am going to make another controversial forecast. I believe the homeownership rate can get back to 66.21% at some point in the years 2022-2026.
1. The median age for first time home buyers is now 32, and the number of Americans in the range of 25-31 years is massive.
2. Boomers are staying in their homes longer so remaining homeowners,
3. The loan profile of buyers during the post-2010 expansion is excellent, so when the next job loss recession happens, we won’t lose as many homeowners (compared to what occurred after the Great Recession).
A 66.21% rate in homeownership would get us back to the level we had in 1997, so it is not such as stretch.
As you can see from the chart below, purchase applications rose with homeownership rates and peaked in 2005 in the last cycle. In this cycle, there are over 157,000,000 people employed, mortgage rates at the lowest ever in U.S. history, and we are on pace to have the longest economic expansion and the longest job expansion on record. Even during these “economic nirvana” conditions, purchase applications are only at 1998 levels. If we didn’t count the cash buyers in the market, which are at historical highs. We are not left with enough mortgage buyers to warrant a real unit sales recovery from 2008-2019. However, I expect the purchase application index to go to 300 sometime in the years 2020-2024. I hope total housing starts to hit 1,500,000 at some point in that period. Purchase applications have been increasing in 2019, so I expect we will crack that 300 in time. The only variable that could hinder this is if mortgage rates get to 5.875% or higher
Don’t look at new home sales to boost the overall market too much. New home sales have had the weakest recovery ever recorded in U.S. history, but this also means we have legs for higher sales and housing starts. I still believe we should hit 1,500,000 total housing starts at some point in the years 2020-2024. Typically housing starts fall into the next recession, so the timing of that 1,500,000 total starts in the years 2020-2024 will vary on when the recession finally hits our shores.
Housing tenure is the most critical housing story in America today. Tenure has basically doubled in this cycle. Low household formation and unfavorable demographics (population is too young and too old) along with affordability issues in some markets are why demand hasn’t been to the liking for some. Folks are staying in their homes instead of moving up. Housing tenure could be the most significant housing economic story of our life, and it is finally getting some attention.
I will be interested to see the effect that the rising birthrates in the next decade have on housing tenure. In theory, increased birth rates should increase the number of move-up buyers that want to improve their home size to accommodate their growing families. This scenario presumes that the first homes purchased are small, and this may not be a correct assumption. Only time will tell.
From Doug Short
From The NAR:
Regarding mortgage rates and 2019 Spring demand. Mortgage rates did hit my low forecast level of 4.125% this year. Unless we get a nasty stock market sell-off or weaker global data for the rest of the year, we already hit bottom for 2019. Purchase application data this year has had some negative year over year prints during the more crucial time for housing. However, we are still at cycle highs in demand and running 12 positive years over year prints vs. 3 negatives during the heat months of this data line. While my forecast is still for a negative year over year total sales for existing homes. Look for some positive prints to happen toward the 2nd half of the year as the year over year comps get more comfortable to beat.
Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data daily on his own facebook page https://www.facebook.com/Logan.Mohtashami