A new year means a whole new slough of predictions and projections. Last month we got one such set of forecasts from Frank Nothaft, CoreLogic’s Senior Vice President and Chief Economist, published in his company’s MarketPulse magazine. In 2017, he expects economic growth to be key for the housing market with growth numbers between 2 and 2.5 percent. He went on to outline five features of the coming year that he predicts to play out alongside the growth.
- Higher Interest Rates – Nothaft thinks interest rates for both single-family and multi-family loans will average a little above 4% over the coming year. Recently, the Federal Reserve raised it’s rate, and they have three more similar hikes planned this year. This will affect home equity lines or HELOCs, loans tied to short term rates, by increasing the overall cost.
- Low Vacancy Rates – Nothaft predicts that the rental market will continue to see low vacancy numbers while the rate falls for owner-occupied homes, as well. This means a lower level of construction which in turn contributes to a continued lack of a sufficient supply of homes for sale.
- Tight For-Sale Inventory – Because there will be so few houses on the market, there will be an appreciation of property due to scarcity. Nothaft project’s that CoreLogic’s own Home Price Index will rise by 5%. However, there will be some places where prices drop while other areas experience double-digit increases. There is expected to be some pressure on rising rent prices while vacancy rates remain so low. But this is where Nothaft says the economic growth will help create an equilibrium. Last year, CoreLogic’s Repeat Rent Index clocked a 3.3% increase in rents by October. But once the many multi-family units currently under construction are completed, that number is expected to flatten down to 3%.
- Reduced Incentive to Refinance – Because mortgage rates are rising, there’s less of a refinancing market. So, naturally there will be a decrease in the number of those loans. But this void will be partially filled with higher purchase mortgages and by second liens. That’s HELOCs for single-family properties, and for multi-family properties it’s mezzanine debt.
- Low Credit Risk – Nothaft expects that there will continue to be low credit risk for new loans. Single-family loans made in the first half of 2016 proved less risk when compared to loans of the same type made 15 years ago, as reported by CoreLogic’s Housing Credit Index. There is a risk, however, that the increasing shift to a higher share of purchase loans could reveal a greater exposure for instances of fraud. But Nothaft qualifies this concern by saying, “the attributes continue to look favorable.”