Despite weak home sales, rising home prices, lack of affordability and a poor job market, Moody's is optimistic that housing will rebound in the second half of this year, saying in a recent report that ‘positive signs are appearing that the spring thaw will benefit housing.’
Moody's Senior Director of Economic Research Celia Chen writes that despite weak housing data for the first quarter, ‘demand drivers of housing are improving, with job gains picking up and consumer confidence firming.’
Helping to drive the market in the second half is the fact that some mortgage lenders are now ‘opening the credit spigot a little bit wider.’
‘Wells Fargo, for example, reduced its minimum FICO score requirement on FHA mortgage loans to 600 from 640, and lenders report reducing overlays on loans to less than stellar credit risks,’ Chen writes.
Moody's expects an increase in new home construction in 2014 in response to low inventory. This, in turn, will generate jobs that will stimulate the economy and offset the rise in interest rates resulting from the tapering of the Federal Reserve's bond-buying program.
According to the report, the recent step-up in homebuilding is already helping to create residential construction jobs: Year-over-year, home construction jobs were up 5% in March – compared with 1.7% total job growth.
The report makes it clear that job and wage growth are the key to improving the housing market.
‘The demand for housing will improve as job growth improves,’ Chen writes. ‘Moreover, stronger job growth in the wake of the Great Recession will unleash pent-up demand for housing.’
As per the report, ‘U.S. Housing Outlook: Optimism Despite Weak Data,’ the 14.5% dive in new home sales that came in March ‘likely overstate[s] the weakness in housing’ and is probably not a long-term trend.
‘To be sure, there are still speed bumps on the road to a stronger housing market,’ Chen writes.
The report forecasts that home price appreciation will stay basically flat for the remainder of the year. What's more, 30-year fixed mortgage rates will rise to as high as 5.40% before the end of 2014 – and to 6.0% in 2015.
‘Several obstacles could trip up this strong housing outlook, including a faster increase in interest rates than expected and softer than anticipated demand on the part of first time homebuyers,’ the report concludes. ‘Another month of lackluster housing data will cause us to revise our outlook downward.’