DS News

56 C O V E R S T O R Y / D A V I D W H A R T O N "You're always fighting the last war." ose were the words of Tendayi Kapfidze, Chief Economist, LendingTree, as DS News interviewed a lineup of top economists and industry experts to try and answer one question. Ten years after the last housing crisis and the Great Recession, is another downturn looming on the horizon? What factors and trends are in play that could spark another crisis? DS News asked economists and industry experts what the next crisis might look like and, more importantly, what servicers should be doing now to prepare for it. "e last housing crisis was fundamentally an underwriting crisis," Kapfidze continued. "If you had a pulse, you could get a loan. e industry has moved away from that, so a repeat of that type of crisis looks very unlikely." "e 2008 housing crisis was something of a black swan," added Mark Fleming, SVP, Chief Economist, First American. "It was unexpected, and the correction unprecedented, not only in terms of magnitude but also geographic diversity. Historically speaking, there had been housing recessions in the past, but they had been localized." Today, foreclosure rates are historically low, the economy is strong, and home prices are soaring. According to the National Association of Realtors (NAR), the national median price for existing single-family homes in the Q1 2018 was $245,500, up 5.7 percent over Q1 2017. In May, Zillow reported that U.S. home prices were rising at their fastest rate in 12 years. However, some of the factors contributing to the current housing boom could also be setting the stage for a fall. Per a May NAR report, 1.67 million existing homes were available for sale at the end of Q1 2018, down 7.2 percent below the same quarter in 2017. e average supply during Q1 2018 was 3.5 months, down from 3.7 months in Q1 2017. e housing market is, simply put, not producing enough homes to keep up with demand. THE FOUR Ls Construction rates simply aren't keeping up in many parts of the country. Robert Dietz, Chief Economist at the National Association of Home Builders, told DS News he expected the industry to begin construction on about 910,000 single-family homes by the end of the year. "e market could likely absorb about 1.2 million," Dietz explained. "Supply-side bottlenecks are holding back the growth rate." "On the aggregate level, you have about 5.5 months' supply, which is well above the month supply from 1996 to 2006," Kapfidze added. "e last time homebuilders went meaningfully above this level of month supply, they got burnt pretty bad. So I don't see that the homebuilding industry has an incentive to increase month supply much beyond where it is now." During our interview, Frank Nothaft, SVP and Chief Economist, CoreLogic, referenced the "Four Ls" of housing supply—lending, land, labor, and lumber. All four play a role in the current challenges facing the market … but some more than others. e impact of that first L certainly shouldn't be glossed over. Scholars, experts, and armchair quarterbacks will be dissecting the impact of subprime lending and underwriting standards on the housing crisis for decades to come, as well as how the government responded to the crisis with new regulations. "What the government did was necessary, but I don't think it was necessarily in the best interest of the long-term correction," said Chris Ragland, COO, Noble Capital. "e Troubled Asset Relief Program, quantitative easing—these are some of the most broad-stroke government interactions we've seen since the New Deal. I don't think we will understand the long-term ramifications of those actions for quite some time." "ere have been many improvements with the quality of underwriting and the types of loans that can be issued, but the government still needs to figure out its role in housing finance," said Danielle Hale, Chief Economist, Realtor.com. At a recent industry conference, Kevin 56 WHEN INVENTORY DRIES UP

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