With low mortgage rates, relatively inexpensive prices and rising family incomes, affordability is "sky high, the best its been in 40 years," Nothaft said at the New England Mortgage Bankers Conference in Newport, R.I., late last week. "Even with the recent rise in mortgage rates," he said, "affordability is still very high. It's the most affordable market for home buyers that we've seen in decades."
The Freddie Mac economist expects loan rates to bump up a bit by the end of the year, reaching 5%. But that's still "pretty low" by historical standards, he said—"and still very affordable." Although the sector is being buffeted by some "powerful headwinds, namely unemployment," Nothaft told the conference on its final day that home sales should rise by 8% this year, on top of a 12% gain last year.
While that's down from the peak in 2004-05, he added, it's nonetheless a positive sign. "Things are going in the right direction, but it's going to take some time," he commented. He also projected that recent gains in home prices will "carry forward." Appreciation may not be as strong as it has been, he said, but the arrow is still trending up.
Nothaft said the desire to own a home is the same now as it has always been. People "recognize that they may have to wait a little a little longer," he said. "But the desire to own is no different from previous generations."
Another bright spot is the return of the first-time buyer. According to Nothaft, roughly a third of all owner-occupied sales are to first-timers, which is "almost typical" for previous generations. Rookie buyers "have come back," he said.
At the same time, the cloudy employment picture—7.3% is the official unemployment rate but 13.7% of the workforce is underutilized—is holding even the most affordable markets back, he told the conference.
He brought a chuckle from the audience when he said, "Unemployed people don't buy houses—at least not anymore." But he elicited a few groans, too, when he said it "will be a couple of more years at least" to push delinquency rates down to a more normal level.
Delinquency rates "are going to be elevated for quite some time," he reported.
Lew Sichelman is an independent journalist who has been covering the housing and mortgage markets for more than 40 years.