The next 12 months are likely to see only half the price gains experienced in the previous 12 months, Zillow chief economist
During the height of the housing boom, Humphries said at the Forum on the Future of Housing, families were buying houses worth four times what they earned every year. Now, after dipping down to below a 3-to-1 price-to-income ratio in 2012, the ratio is back again to 3-to-1 and rising.
"We're starting to move away from equilibrium," the economist said, noting that the mean price-to-income ratio for the 15-year period between 1985 and 2000 was only 2.6.
Humphries said the troubling trend is being masked by unusually low interest rates. "Houses appear to be very affordable because of the low mortgage rates, but prices are rising so fast that they're not," he said. Pondering what would occur when interest rates "return to normal," he said affordability all but goes out the window.
For now, though, the economist said housing is "in the midst of a strong recovery." As of February, prices have risen 7% from the bottom, which was recorded in October 2011, according to the popular Zillow Home Value Index. But even at that, prices are still 18% below their peak, which was hit in April 2007.
Still, Humpries is looking for house prices to rise just 3.2% over the next 12 months versus 5.8% over the last 12, despite scarce inventories resulting from little or no homebuilding activity and the fact that many would-be sellers are all but prohibited from taking part in the recovery because of negative equity.
He said 27.5% of all current owners owe more than their homes are worth, but that the percentage is much higher in places like Las Vegas (50%), Phoenix (40%) and Southern California (30%).
Another forum speaker, Sen. Johnny Isakson, R-Ga., also proclaimed the market's return to health—"I'm here to tell you housing is back," he said—but warned that "fundamental changes in housing policy have to take place" or the recovery won't go much further.
Number one on the Georgia Republican's must-do list is to replace Fannie Mae and Freddie Mac with a single agency "governed by an independent board and run like a business." And he'd drop the Fannie-Freddie monikers, too. Those names, he said, "are a tarnished brand."
Isakson praised Richard Cordray, giving the embattled head of the Consumer Financial Protection Bureau kudos for establishing a strong definition for a well-qualified mortgage. "We didn't have a downpayment recession," he said of the housing downturn, "we had an underwriting recession, and we paid a terrible price for it."
The senator said that as long as underwriting standards remain in place, the chances of another housing catastrophe are remote. But he also warned that regulators have gone somewhat overboard in their requirements. Some agencies "are treating broken arms like they are heart transplants," he said.
The Forum on the Future of Housing was sponsored by Zillow, the Progressive Policy Institute and the American Action Forum.
