If we’re not heading into a bubble, if rising rates won’t derail the recovery, and if more inventory will soothe prospective buyers’ jangled nerves, are there any risks to the housing market for the rest of 2013? You bet. There absolutely are. Topping my watch list for the rest of the year are four big questions:
1. Will it become any easier to get a mortgage?
After the bubble burst, mortgage credit went from overly loose to overly tight. Recent data suggest mortgage credit might be loosening a bit for the most creditworthy borrowers, but credit remains tight. Soon, though, this could change. Asmortgage rates rise and refinancing demand dries up, banks might look to expand their home-purchase lending instead. Furthermore, new mortgage rules coming into effect next year will give banks more clarity about which loans are considered risky, and how banks will be on the hook legally and financially if they make these riskier loans – and this new clarity could make banks more willing to write mortgages deemed to be safer. We’ll see.
4. Will young adults get back on their feet?
Millennials – people age 18-34 – had an especially rough recession. Despite the overall economic and housing recovery, they remain almost as likely to live with their parents as they were at the worst of the recession – even if they have jobs. Not only are young adults not becoming first-time homebuyers; they’re not even renting. The housing market won’t get back to full health until these young adults are living on their own as either renters or owners.
3. Is there a new shadow inventory?
The “shadow inventory” – homes in delinquency or foreclosure that will eventually come onto the market – keeps shrinking, putting to rest earlier fears of a coming flood of distressed homes for sale. But Census data released this morning show that a different shadow inventory may nonetheless be looming: the 2013 Q2 vacancy survey shows that 5.6% of all housing units are vacant and “held off market,” up from 5.1% in 2009 and down just slightly from the all-time high in 2012. Even though the inventory of homes for sale or rent is shrinking, this shadow inventory of homes held off market is large – but perhaps only until their owners decide prices have risen enough to unload these units.
4. What will Washington do?
In the first half of 2013, the government made two critical policy announcements affecting housing: (1) the Consumer Financial Protection Bureau’s qualified mortgage (QM) rules and (2) the Fed’s bond-buying tapering. But two bigger, messier housing hot potatoes are still being tossed around: the mortgage interest deduction, and the future of Fannie Mae and Freddie Mac. Both of these huge issues pretty much boil down to the same fundamental question: how much should the government – and therefore taxpayers – help people buy a home (or buy a bigger home than they would otherwise)?
Banks, Millennials, the new shadow inventory, and Washington: they’ll all help shape which direction the housing market will go in the rest of 2013 and beyond.