DSNews delivers stories, ideas, links, companies, people, events, and videos impacting the mortgage default servicing industry.
Issue link: http://digital.dsnews.com/i/1517420
MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 58 March 2024 T H E P O I N T forecast is that that housing will slow. The employment cost index recently came out, and compensation is indeed slowing. It's one of the demand side factors for hous- ing. It's also something the Fed is watching carefully, as they calibrate monetary pol- icy. So, that would be something. Mark, I don't know if you want to add anything. Q: What do you anticipate on the rates front for the remainder of 2024? What could change your forecast on rates this year? Mark Palim: Fannie Mae has mortgage rates by the fourth quarter of this year going down to 5.8%. Then, by Q4 of 2025, we have rates forecast at 5.5% … that's our base forecast. Duncan: If the Fed perceives that they have not accomplished their work on inflation, or if there is a reversal in the path of inflation, that would certainly impact the Fed's path to a monetary pol- icy. They have not ruled out any further hikes. I think the Fed has conditioned the market to suggest it is really dependent on whether there was any resurgence in inflation. So the market is expecting to see a discussion of rate cuts in the future if not hikes, but they'll reserve that option. There is also a lot of geopolitical risk out there. We are not forecasters of interna- tional relations, but we do see risks to eco- nomic activity through the shipping space, for example, and that's been well-docu- mented, some of the attacks on shipping, which is going to impact risks related to the global supply chain. Rerouting tankers all the way around South Africa is expensive and could conceivably show up in some inflation measures. These geopolitical risks are somewhat elevated in our view today. So things could happen in that arena that might alter the path of activity. Palim: Starting in April of 2022, we had a recession in our forecast because of the speed of the tightening that was happen- ing by the Fed. We've taken that out, but we still think we now have subpar growth of 1% this year, and growth of 1.5% in 2025 or around there. There is a downside risk that for whatever reason, the economy may further weaken. That would likely drive down mortgage rates below what our forecast has. Q: Are there any factors that may break the stalemate of people not selling their homes? Would you attribute many people staying in place at the moment to the high rate environment? Palim: We asked people in a survey last year, "Are you planning to stay in your home longer than you expected or move sooner or about what you expected?" We found that the share of those who planned to live in their house longer was very close for those with and without a mortgage. So, that was a first clue that non-mortgage factors may be important, not just rate lock-ins as to why people are not listing their homes for sale. We found that for those with a mort- gage, 20% of those polled revealed that the top reason they are staying in their house longer is the rate on their mortgage. That was quickly followed by nonfinancial reasons, like where they live, they liked their home, and other reasons. As rates come down, will we see an increase in supply? If the lock-in was 80% of the reason people were not listing their homes, it might lead to more supply. And we just don't think that's the case. We think that we pulled forward a bunch of sales when sales in 2021 and 2022 spiked dramatically. That, in part, was due to peo- ple who might be moving over the next few years and pull that move forward. Duncan: I have watched some of the storylines talking about a market that is frozen or logjammed. I don't find those as compelling metaphors because there were still nearly 3.8 million sales at an an- nualized rate. There is a lot of activity out there, it's just not nearly at the level that it was previously. What people are really calling for is more supply to improve affordability as interest rates come down, and a related pickup and activity which lies on the back of the builders. Palim: Those who follow the National Housing Survey (NHS) have seen that affordability has been a key issue in that survey and the responses people give … we did see a jump up in those. In the latest NHS reading, we expect to see a decline in mortgage rates, which is both helpful and positive in housing activity. However, affordability challenges loom large over people's willingness to move or buy a home as first-time home buyers. Duncan: Equity accumulation has been substantial of late. And whether they have a mortgage or not, in either case, they've accumulated substantial equity. If they do have a mortgage that was taken out in the 2020-2022 timeframe, it's at a lifetime low. If you are in that category, this is a fairly good time. If you are on the outside of ownership trying to get in, that is where the issue of affordability can be really daunting. Palim: Affordability impacts move up buyers as well because they look around and say, "Wherever I move to is pretty darn expensive. I'm not seeing a lot of bar- gains out there, so why should I move?" Q: Back to affordable housing and entry-level buyers, what factors do you think need to change in the market in order to attract more first-timers? Would it be an increase in supply, an increase in affordable housing, or just overall economic factors that are keeping them on the sidelines? Duncan: There are three critical vari- ables. One is income. Incomes have to grow. The second variable is interest rates … interest rates need to come down. The third is home prices, and there needs to be some easing on the price of homes in the United States. The house price piece relies on supply. So as a derived factor, it's really the supply. And I know people are bored of writing the supply story, but it's THE story. It has been on the back of the builders for a while. And of course, builders don't build houses unless they can sell them because that's where they make money. So again, the interest rate component and the income component will help determine whether someone can afford to buy a new