S&P Ratings U.S. Housing And Residential Mortgage Finance: 2014 Outlook

admin Dallas Luxury Real Estate for Sale Leave a Comment

By: Devi Aurora Senior Director Financial Institutions Standard & Poor’s Ratings

January 6 – 11:07 am

U.S. housing made a strong comeback in 2013. Home prices nationally have risen roughly 12%, which is in line with our original forecast early in the year of 11%. Overall, we expect a 6% increase in the S&P Case-Shiller 20-City Home Price Index (December to December % change) in 2014. While historical annual increases are more in the 4%-5% range, a continued rebound in prices from the 35% trough in 2012 is well complemented with an outlook for positive economic momentum in 2014. While the U.S. economy was saddled with unemployment levels above 7% in 2013, our baseline forecast for the unemployment rate in 2014 falls below the 7% mark. Furthermore, we expect a real GDP growth rate of 2.6% in 2014. While the private sector–including the housing market–is showing signs of strength, the federal government could temper momentum in 2014. However, the agreement on a budget for 2014 is a good sign that the governmental episodes we saw in 2013 might not recur in 2014.

Next year will also lay new ground for mortgage finance as the implementation of the qualified mortgage (QM) and ability-to-repay standards are implemented just 10 days into the new year . Furthermore, mortgage finance reform legislation proposals are still in discussion, as Fannie and Freddie still hold the dominant position in mortgages. And of course, the recent announcement of the Fed to start tapering bond purchases of the third round of quantitative easing (QE3) starting in January seems to be a step toward conventional monetary policy in lieu of the massive purchases of treasuries and mortgage-backed securities. We also expect a shift in mortgage products as adjustable-rate mortgages gain popularity going into the new year; under our base-case forecast, the 30-year fixed-rate mortgage will increase to 4.6% in 2014 from 4.2% in the fourth quarter of 2013.

While the growth in home prices looks good for 2014, mortgage financing availability and the number of new applications remain key components for demand in the new year. Even as building permits and new starts continue to grow, the availability of financing remains the lynchpin as we hover around a 64% home-ownership rate. The government-sponsored entities (GSEs) and Federal Housing Administration (FHA) continue to be responsible for buying or insuring most new originations. While this model has proven worthy in the housing recovery over the last 18 months, the lower-than-average homeownership rate and swarm of investor purchases might or might not be a long-term model for U.S. housing. This model also relies on a form of substantial U.S. government guarantee, which we understand the housing finance reform proposals in 2013 demonstrate to be the less popular option.
The impact of housing fundamentals varies across the multiple housing-related sectors and securities that we rate. Although the ongoing recovery has benefits for certain parts of the market, each part of the market will be affected one way or another based on the housing, economic, and political landscape of 2014. As such, we discuss some of the housing related sectors below, going into the new year.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.