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If Today’s Housing Activity is Dull, Wait Until 2017!

Phil Hall
Oct 19, 2016

Today’s housing data news is mostly dreary. But there are signs pointing to a much, much more exciting period come January.

There was relatively minimal activity in the latest Mortgage Bankers Association Weekly Mortgage Applications Survey for the week ending Oct. 14. The Market Composite Index took a scant 0.6 percent uptick on a seasonally adjusted basis from one week earlier, but fell nine percent on an unadjusted basis. The seasonally adjusted Purchase Index rose three percent from one week earlier, but the unadjusted Purchase Index fell seven percent compared with the previous week—but it was also 13 percent higher than the same week one year ago. The Refinance Index dropped by one percent from the previous week as the refinance share of mortgage activity decreased to 61.5 percent of total applications from 62.4 percent the previous week.

On the government home loan front, the FHA share of total applications increased to 11.3 percent from 10.9 percent the week prior while the VA share of total applications increased to 12.8 percent from 12.0 percent and USDA share of total applications remained unchanged at 0.7 percent.

In other data developments, First American Financial Corporation’s proprietary Potential Home Sales model for September found potential existing-home sales ascended to a 5.8 million seasonally adjusted, annualized rate (SAAR). Although the market potential for existing-home sales grew by 6.5 percent compared with a year ago, an increase of 352,000 (SAAR) sales, the market for existing-home sales underperformed its potential by 6.5 percent or an estimated 375,000 (SAAR) of sales.

“Current mortgage rates hovering near historic lows combined with increases in wages remain the key drivers to growth in the housing market, as they continue to soften the impact of rising prices and offer consumers increased leverage and buoyed homebuying power,” said Mark Fleming, chief economist at First American. “While this is contributing to greater consumer confidence in the housing market and providing a firm foundation for increased housing demand, tight inventory, particularly in the lower-priced segments, is keeping market activity from reaching its true potential.”

If today’s market seems a bit dull, tomorrow’s market could be filled with youthful exuberance from Millennials in pursuit of homeownership. New data from Realtor.com is forecasting a 2017 market where 52 percent of buyers will be first-time participants in the residential property scene, and where 78 percent of Millennials will be new to this corner of the economy. The Millennial buyers will be mostly interested in single-family homes (39 percent of potential buyers in this demographic) or townhomes (34 percent), and less intrigued by multifamily homes (15 percent), and condos (10 percent).

“This represents an ‘Oh, shift’ moment in housing,” says Jonathan Smoke, chief economist for Realtor.com. “With so many first-time buyers in the market, competition will be even fiercer next year for affordable starter homes in the suburbs. Those looking to buy may want to consider a winter home purchase in order to avoid bidding wars and higher prices spurred by a potential increase in Millennial buyers.”

And it appears that the next wave of homebuyers will not be making all-cash purchases. CoreLogic reports that cash sales accounted for 29.7 percent of total home sales in July, down 1.9 percent from a year earlier. Real estate-owned (REO) sales had the largest cash sales share in July at 57.6 percent, the lowest share in nine years, while resales had a 29.4 percent share, followed by short sales at 28.1 percent and newly constructed homes at 15 percent. All but eight states recorded lower distressed sales shares on a year-over-year measurement, most notably Maryland (19.4 percent), Connecticut (18.6 percent) and Michigan (17.8 percent).

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