Opportunity in the burbs - Economists say housing market finally shifting back to normal

Housing starts and home sales both remain well below their previous peaks, according to a report published by Wells Fargo’s Economics Group. The economists said that tight supply and slow turnover have been caused by various factors, such as:

• Homes not turning over as quickly as they did in previous housing cycles.
  
• An influx of investor buyers that converted houses into rental homes. 
• A refinancing boom which produced further drag on turnover. Homeowners refinanced at generation-low interest rates often opting to remain in place and build equity rather than trade-up or downsize.
• Buyers for new homes have been relatively scarce, as the trend back toward urban living has captured many of the more financially capable home buyers.
• Many “would-be” first-time buyers are being weighed down by student loans or are just now starting families. 

The most telling statistic shared by the economists is that even though the inventory of existing homes available for sale has fallen on a year-over-year basis for 28 consecutive months. We’ve seen a connected increase in home prices but, at the same time, we’ve also seen the amount of mortgage opportunities decrease. 

"The inventory of new homes has also remained extraordinarily low throughout much of this recovery."

Now the housing market looks to be shifting back to long-term norms. “There are ample reasons to be optimistic about housing in 2018,” they said. “We believe we are at a significant turning point in the housing recovery, where several trends that have been holding back sales and new home construction since the financial crisis will begin to unwind. One of the more prominent trends has been the movement back toward center cities, which has coincided with the emergence of millennials and contributed to an epic apartment boom.”

Millennials are aging into their peak family-formation years, a demographic shift that should boost first-time home buying. In search of affordability new millennial families are likely to look to the suburbs for their home. “We expect to see demand shift back toward the suburbs as housing costs in and near most center cities have dramatically outpaced incomes,” they said. “There is simply less land to be developed and redeveloped in areas closer-in to center cities, particularly relative to the overall population and overall demand for housing.”

By the end of 2017, sales of new homes are expected to rise 8.7 percent, next to 0.4 percent for existing homes. The median price of an existing home is expected to rise 5.3 percent, while the price of new homes should rise just 2.7 percent, the economists predicted.

What’s our takeaway at CU Companies? We believe offering mortgages is always an opportunity for financial institutions. Soon, though, offering mortgages may offer significant growth opportunities, especially in areas near travel thoroughfares where home buyers can get more for less by moving away from city centers.