“Low resale inventory and generally healthy economic conditions — including the longest economic expansion in American history — have lifted builder sentiment,” wrote NAHB chief economist Robert Dietz in “Eye on Housing,” the organization’s blog.
“The U.S. faces a cumulative housing deficit of about 1 million homes based on population, household formation growth and the need to replace older homes,” Dietz wrote in an email.
Here are the production numbers as measured in terms of starts per million population (averaged over the decade):
“While we are seeing near-term positive market conditions with a 50-year low for the unemployment rate and increased wage growth, we are still under-building due to supply-side constraints like labor and land availability,” Dietz said. “Higher development costs are hurting affordability and dampening more robust construction growth.”
Mortgage Bankers Association
The trade association for the real estate finance industry expects revenue to fall as lenders chase fewer loans. Purchase applications will be up slightly, while refinances will be lower. Purchase originations will increase 1.6 percent to just under $1.3 trillion in 2020. Refinance originations will slow to $599 billion, a 24.5 percent drop. Total originations will fall to just under $1.9 trillion.
“Interest rates will, on average, remain lower for longer given the somewhat cloudy economic outlook,” said Mike Fratantoni, the MBA’s chief economist. “These lower rates will in turn support both purchase and refinance origination volume in 2020. Lower-than-expected mortgage rates gave the refinance market a significant boost [in 2019], resulting in it being the strongest year of volume since 2016. Given the capacity constraints in the industry, some of this refinance activity will spill into the first half of next year.”
The 30-year fixed-mortgage rate will be around 3.7 percent. New-home sales will rise to 704,000, while existing-home sales will increase to 5.6 million. Home prices will increase by 3.1 percent.
“The benchmark 30-year fixed rate mortgage will hopscotch back and forth over the 4 percent mark for much of 2020, remaining low enough to facilitate home-buying and providing ample refinancing opportunities on those trips below 4 percent,” said Greg McBride, Bankrate.com’s chief financial analyst. “Rates will trend higher toward the back half of the year as inflation readings move above 2 percent.”
U.S. homeowners are sitting on $6.2 trillion in untapped home equity, according to real estate data and analytics firm Black Knight. Many of them may consider tapping into that equity to pay for their children’s education or undertake a home improvement project now that interest rates are expected to remain low.
Most home equity lines of credit (HELOCs) are variable-rate loans tied to the prime rate, which follows the Federal Reserve’s Federal Funds rate. The Fed cut its benchmark rate three times in 2019 and indicated that rate increases were unlikely this year.
“Interest rates are unlikely to be an impediment for qualified home equity borrowers in 2020,” McBride said. “Even if mortgage rates were to rise from the sub-4 percent levels of 2019, HELOC rates would largely hold steady if the Federal Reserve isn’t changing interest rates.”