The regulators may have overreached but correcting course isn’t a simple task, according to one economist.
“Certainly the pendulum swung too far to over-regulation; there is an optimal mix of setting the appropriate rules and leaving the market to itself. We seem to err on both sides in a sense,” Ralph DeFranco, global chief economist at Arch MI, told Mortgage Professional America. “So there will be less pressure on lenders from things like the CFPB – clearly they aren’t going to be as aggressive. Likewise, the enforcement over things like the FHA. Those are all positives for the housing market.
“What that does is it stimulates demand, but supply is still constrained. So that will push up home prices, particularly where we have a shortage of housing in the entry level, first-time homebuyer market. Those home prices have been rising several percentage points higher than the national average in (many cities).
“If you do something to loosen guidelines you’re basically putting more people competing with each other for a limited number of homes.”
In a wide-ranging conversation, DeFranco shared his thoughts on the stories and trends that are expected to define 2018.
And while regulation will continue to be top of mind, so too will the health of the housing market.
No worries there, though.
“I think the housing market is going to remain strong. We’re underbuilt as a country so that implies continued, strong home price growth,” DeFranco said. “It’s currently growing at 6%; even with interest rates expected to tick up next year, I’d expectant in the 4-6% range nationally. With some variation. Probably the variation will look a lot like what we saw over the last year: Weaker in smaller areas and hot in certain cities out west and south.”
Construction levels have been one issue plaguing the industry, with a shortage of talented laborers and hesitation from banks to loan on land.
However, that industry is expected to enjoy a shot in the arm next year.
“I also think construction is going to continue to ramp up probably 10% a year. We’re basically building far less homes than there is growth in the number of households,” DeFranco said. “There’s already a shortage of housing and it shows up in super tight inventory, it shows up in falling vacancy rates, you see it in the construction numbers. They’re at recessionary levels still.”
Source of article: