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Housing Push-Pull - March 26, 2019

“Would-be buyers still face challenges”

While snow is still in the forecast for many places around the US, Alcynna Lloyd at HousingWire reports that “Spring home-buying season is officially here”, and with it a mixed bag of factors affecting housing markets.

On the good news side of the ledger for buyers are lower mortgage rates and rising inventories, both of which should help “offset some difficulties associated with price gains” according to Danielle Hale of Realtor.com. Rising home prices have lead to affordability issues, as we highlighted last week, but there is also some good news on that front. According to recent data from both Case-Shiller and the Federal Housing Finance Agency (FHFA), the rate of home price growth is moderating. As Jing Fu writes in an article in Eye On Housing, though home prices continue to rise nationally, the National Home Price Index saw its “lowest annual gain since February 2015” at the same time the “annual growth rate has decreased for ten straight months”. The FHFA’s Home Price Index measured similar changes, rising 5.6% in January on a YoY basis, “the lowest annual growth rate since December 2015.”

But it’s not all good news. Though mortgage rates may be retreating from their highs, some borrowers may find it more difficult to get a loan due to recent changes enacted by the Federal Housing Administration. As covered in an article by Ben Eisen in the WSJ, in “an about face from a 2016 decision to loosen underwriting standards”, the FHA is now “worried that lenders are making loans to borrowers who can’t repay” and will be “flagging more loans as high risk”. This could affect more than 40,000 loans per year and comes as the average credit score for FHA borrowers has fallen “to 670, the lowest level in a decade”.

Residential construction is also showing signs of slowing. The most recent Census and HUD data shows both Building Permits and Housing Starts declining significantly YoY, dropping 2.0% and 9.9% respectively. However, before we get too sour, there’s a massive error range for housing starts (±10.3%) and revisions could save the day: as the release itself notes, the government shutdown caused some delays that resulted in “larger than normal revisions”. It’s a stretch to hope on revisions to save the trend, but like Lloyd’s prospects in Dumb and Dumber, “there’s a chance”!

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