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Residential Department: Data Decoded: October 2018


Data Decoded

Expect sluggish growth ahead on the home-sales front


The U.S. economy continues to forge ahead, but the housing market has not kept up with the strength of the broader economy. Consumer and business spending continue to fuel the economy as household wealth increases,  driven by equity markets that have shown few signs of slowing. This strength seems to have offset jitters about trade tensions between the United States and China and other countries.

Despite a slight slowdown this past July, the job market continues to grow robustly, averaging 215,000 jobs added per month through July of this year. The unemployment rate remains remarkably low and wage growth is slowly rising — although it remains below expectations, given the low level of unemployment and the high number of unfilled jobs.

With the economy growing, the unemployment rate is close to an 18-year low, and with inflation picking up, the Federal Reserve raised short-term rates this past June. We expect two additional rate hikes this year yet, followed by three hikes in 2019 — bringing the rate target above 3 percent by the end of 2019.

The growing economy should move rates higher still. We expect 10-year Treasury yields to increase slowly through 2018 and 2019, reaching 3.1 percent in the fourth quarter of 2018 and 3.4 percent at the end of 2019. The 30-year fixed mortgage rate is expected to reach 4.8 percent at the end of 2018 and 5.2 percent by the end of 2019. 

Housing starts and building permits have slowed, with annualized single-family construction varying between 800,000 and 900,000 units this year, well below the historical average of 1 million units. Home sales, both new and existing, remain held back by the lack of home inventory, but also by rising prices and increasing mortgage rates that challenge affordability.

Given the weakness in recent data, the Mortgage Bankers Association lowered its forecast for both home starts and sales, expecting only sluggish growth in 2019 and 2020. It seems like the stronger growth in the housing market that should be supported by the robust economic backdrop has been paused for a time.

We now expect $1.15 trillion in purchase originations this year, a 3.5 percent increase over 2017, and for that to grow by around 4 percent in 2019 and 3 percent in 2020 — to around $1.2 trillion for each of those years. 

In the second-quarter 2018 National Delinquency Survey, mortgage delinquencies dropped across all stages compared to the first quarter of 2018. The 30-day delinquency rate dropped 2 basis points from the previous quarter, while the 60- and 90-day delinquency buckets dropped by 8 and 18 basis points, respectively.

The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the past second quarter was 1.05 percent, down 11 basis points from the first quarter of 2018 and 24 basis points lower than one year earlier. This was the lowest foreclosure-inventory rate since the third quarter of 2006.

On a year-over-year basis, the delinquency rate for conventional loans dropped by 2 basis points, while the delinquency rate for Federal Housing Administration (FHA) loans increased by 76 basis points and the delinquency rate for Veterans Affairs loans increased by 25 basis points.

Both Texas and Florida continue to recover from the September 2017 hurricanes. The recovery process for FHA borrowers in Texas and Florida is improving at a slower pace. The FHA nonseasonally adjusted mortgage delinquency rate in Texas was 10.53 percent this past second quarter, compared to 9.56 percent one year earlier. In Florida, the nonseasonally adjusted second-quarter 2018 FHA mortgage delinquency rate was 9.01 percent, compared to 6.16 percent one year earlier. 


Mike Fratantoni is chief economist and senior vice president of research and industry technology at the Mortgage Bankers Association (MBA). He is responsible for overseeing MBA’s industry surveys, benchmarking studies, economic and mortgage-origination forecasts, industry-technology efforts, and policy-development research for the single-family and commercial/multifamily markets. Prior to joining MBA, Fratantoni worked in risk management and senior economist roles at Washington Mutual and Fannie Mae. Reach the MBA at (202) 577-2700.

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