Despite growing affordability challenges, young adults have started to move the mortgage market. The homeownership rate for households under 35 years of age increased 1.4% from the 3Q 16 to 3Q 17. With a population of over 70M, even modest increases in the rates of homeownership by the Millennial generation will have a big impact on the housing market.
The total number of first-time homebuyers through the first three quarters of 17 was 1.6M, up 8% from the same period last year per a report by Genworth.
Freddie Mac helped 349k of those first-time homebuyers in 2017, thanks to innovative solutions like our Home Possible mortgages and its willingness to continually innovate and engage in smart risk taking.
What to Look for Next Year
It’s unlikely the economic environment will be much more favorable for housing and mortgage markets next year. Income growth should remain positive, but not enough to offset the other factors affecting homebuyer affordability. We’re expecting that interest rates will remain low, but gradually move higher. Housing construction should gradually pick up, helping to supply more homes to inventory-starved markets. More housing supply and modestly higher rates will lead to a moderation in house price growth.
One wild card is tax policy. Changes to tax policy have the potential to shift the trajectory of housing markets. The size of the impact that these changes will have is up for debate. Estimates from different analysts show a large variation in estimated impact, based on assumptions about which provisions will be enacted and how the economy will respond. National Association of Home Builders CEO Jerry Howard said that the proposed tax plan would lead to a drop in house prices and could lead to a housing recession. Yale economics professor and Nobel laureate Robert Shiller believes that the plan won’t have a large impact.
If the tax bill increases the deficit, inflation expectations may rise and put pressure on long-term interest rates including mortgage rates. A large increase in mortgage rates would significantly dampen housing market activity. On the other hand, increased after-tax income for some households may support consumption spending, and reduced corporate taxes may drive private investment spending higher. The resulting increases in incomes and Real GDP may partially or even completely offset the negative impact of higher mortgage rates. At this point it’s hard to say exactly what the total impact on housing markets will be. What we can feel confident about is that housing affordability will be a growing challenge in 2018 and beyond. With limited supply and a large, growing, young adult population entering peak homebuying years, competition in the year to come will be fierce.
**Article via Economic Focus