Five Housing Market Predictions for 2016

aei housing risk center logoMy predictions for 2016:

  1. The National Mortgage Risk Index (NMRI), particularly for First-Time Buyers (FTBs), will continue its upward trend that is now nearly 3 years old.
  2. Demand pressure resulting from continuing moderate economic growth combined with increasing leverage and limited housing supply growth will extend the seller’s market that is now over 3 years old.
  3. This will cause home prices to once again grow faster than inflation and incomes; expectation is for nominal home prices to increase about 5% in 2016.
  4. Expect the FHA to further decrease its premium sometime in 2016.
  5. If mortgage rates increase moderately in 2016, debt ratios will grow to accommodate the impact on monthly payments.

Also, the key findings in this month’s National Mortgage Risk Index (NMRI) release for Agency purchase loans:

  • Mortgage credit has continued to loosen, especially for first-time buyers
    • The NMRI for first-time buyers hit 15.81%, a new series high; the November level is up 1.0 percentage point from a year earlier and is well above the Repeat Primary Homebuyer NMRI of 9.83%.
  • The pace of homebuying continued to be strong, with loan volume in November up 15% from a year earlier. The overall volume was buoyed by strengthening demand from first-time buyers, driven by looser lending and an improving job market.
    • About 135,000 purchase loans for first-time buyers were added in November, up 19% from a year earlier, bringing the total in the NMRI to 3.6 million since April 2013.
  • Fueled by historically low mortgage rates and high and growing leverage, a seller’s market has now prevailed for 38 straight months.
    • As a result, real home prices are up 14.2 percent since 2012:Q2 trough, far outstripping real income growth and crimping affordability
  • Credit standards for first-time home buyers are not tight.
    • In November, 70% had down payments less than or equal to 5%, 27% had DTIs greater than the QM limit of 43%, and the median FICO score was 706, a bit below the median for all individuals in the U.S.
  • The cut in FHA’s annual insurance premium early this year boosted its market share to 29.3% in November from 22.9% in March.
    • This increase has come largely at the expense of Fannie Mae and the Rural Housing Service.
  • The seismic shift in market share from large banks to nonbanks continued in November, boosting overall risk as nonbanks have a much higher MRI.
    • In November, the large bank share was 27%, down from more than 60% three years earlier.

Link to December 2015 Mortgage Risk Index briefing presentation.

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