SAN FRANCISCO-With demand up and supply down, one analyst is declaring the housing crisis over. But the good news comes with a caveat, as one person is warning that credit unions need to capture as many purchase mortgages as possible because the long-running refinance boom is winding down.
"The Mortgage Bankers Association predicts there will be 20% growth in purchase mortgages in 2013 over 2012, and then 20% growth again in 2014 over 2013, but this will not be enough to make up for the decline in refi's," Ralph DeFranco, housing economist for CMG Mortgage Insurance Co., told Credit Union Journal.
There are several factors that indicate the housing market is "clearly past the bottom," DeFranco reported, the biggest being supply is tight. At the current sales pace, all available homes would be sold in 4.2 months, a sharp contrast to the 12-month supply that was available during the recent economic downturn.
"In the San Francisco Bay Area there has been a one-month supply for about a year now, and very little new construction, so prices have been appreciating rapidly," he said.
The second major factor is rising values. DeFranco noted home prices were up 7% to 10% last year, depending on the market. He cited a survey of housing economists by Zillow, which predicted the mean rate of growth would be a 22% increase in house prices over the next five years. "I am actually more bullish than that," he said. "Population growth has exceeded construction over the last five years. Even though construction is ramping up, it is still lagging behind the number of new households."
A third factor that points to recovery is the disappearance of a Boogeyman that has long prompted fear in the market, the dreaded "Shadow inventory" of foreclosures and REOs supposedly held by banks. DeFranco said the idea that lenders would dump a large number of foreclosed homes on the market all at once and dampen prices has been a fear for years, but never materialized.
"Foreclosures are down 20% from the peak, and their impact on the market is falling and falling to the point it has become a non-issue for prices," he asserted. "There still are problem loans being worked through, but it no longer is a driver for home prices going forward."
The Fed is trying to keep interest rates low until unemployment reaches 6.5%, with some success, DeFranco noted. He said it is likely the Fed will continue buying mortgage-backed securities, but predicted this "quantitative easing" eventually will taper off.
To increase their first mortgage business, DeFranco said credit unions need to encourage members to take advantage of the fact it is a good time to purchase. He pointed out many members want a smaller debt load, and have been switching to shorter-term mortgages, such as 15-year loans, or refinancing and putting cash in rather than taking cash out.
"Credit unions need to use marketing to point out these are options credit unions can provide," he counseled. "Credit unions have been growing their origination volume, which is great, and they should continue to put effort into it as it is a profitable business."
