Housing Market Sputters, Defying Expectations | KUOW News and Information

Housing Market Sputters, Defying Expectations

Apr 25, 2014
Originally published on April 25, 2014 12:02 pm

In what’s usually the busiest home-buying season, mortgage lending dropped to its lowest level in 14 years and purchases of new homes sank 14.5 percent.

Some of the factors: mortgage rates have ticked up and investors who snapped up homes last year have retreated. What’s in store for the near future of the housing market?

Tom LaMalfa, an economist and contributor to Mortgage Banking Magazine, discusses this with Here & Now’s Jeremy Hobson.


  • Tom LaMalfa, economist and contributor to Mortgage Banking Magazine.
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From NPR and WBUR Boston, I'm Jeremy Hobson.


I'm Robin Young. It's HERE AND NOW. And in a few minutes, we'll go to Washington state, the first state to have its No Child Left Behind waiver revoked. What does that mean?

HOBSON: We'll find out, but first to the housing market and some very worrying signs. According to the publication Inside Mortgage Finance, mortgage lending in this country has fallen to its lowest level in 14 years, and this is supposed to be the busy time of the year for home buying. Tom LaMalfa is a mortgage market analyst with TSL Consulting in Cleveland. He's with us now. Tom, welcome.

TOM LAMALFA: Thank you, good to be with you.

HOBSON: Well, it's not just mortgage lending that is falling. I'm looking and seeing that previously owned home sales are down, new home sales are down, mortgage applications are down from last year. What's going on?

LAMALFA: The mortgage market is weakening. We've got a whole number of factors that are working against the market today. Among them would be the fact that house prices are very high. I'm looking over the data that we had earlier this week, and almost $200,000 on previously owned and almost $300,00 on new. So that's one problem.

Mortgage rates have ticked up a little bit, but, you know, that should be less of a factor because they are still at a relatively low level, at slightly under four and half percent. The biggest things, I think, are economic in the broader economic setting, particularly lackluster job growth and income growth.

The median income is about $52,000. That is a multiple of four times the median price of a previously occupied home. And so that's very difficult because norm should be two, two and a half, three at the outside.

HOBSON: Well, and one of the other things that's been brought up is that a lot of the growth in the housing market over the last several years has come not from individuals going out there and buying and selling homes but from investors, who are going in and swooping up a lot of distressed properties and turning them around and selling them or even turning them into rentals and that that has gone away, to some degree.

LAMALFA: Yes, it hasn't gone away yet, but it certainly has declined. At one point it was slightly more than 35 percent of monthly purchases, and today that's down to I think 29 or 30 percent. So there's been a diminishment. Clearly there are fewer homes that are going through foreclosure. We're largely through the pipeline of distressed properties and foreclosures, and as a result that number was going to ultimately decline.

HOBSON: Give us a sense of what this is like on the ground, in cities around the country. I was reading about Phoenix, where a year ago, we were there and talking to realtors who were saying things were great, and now it really is a buyer's market, or it's becoming more of a buyer's market than a seller's market.

LAMALFA: Yes, that clearly is the case, but it's now undergoing a shift back to a seller's market because inventories are very lean. We're substantially under what would be the normal six month homes for sale inventory supply situation, and so - but then inventories are also, you know, making it easier for sellers to sell, but the problem is that, you know, there are fewer individuals that are interested in selling, fewer homeowners that are interested in selling, because of the fact that they probably secured a very low interest rate to begin with and don't want to sacrifice that.

That's part of it, but then we go back to the affordability issues, and, you know, we've got fewer first-time homeowners due to, in general, a shifting demographic pattern and really a demographic drop-off.

HOBSON: What do you mean by that, a demographic drop-off?

LAMALFA: That the baby boom generation was very large in size, and the generation behind it is substantially smaller. That fact is creating a situation where, over the next couple of years, there are going to be, as baby boomers are retiring, there are going to be more homes put up for sale, but the younger generation is smaller in number and less equipped financially, given the amount of debt that they have from college, are in less of a position to be able to buy those homes.

HOBSON: Well, and it is likely that banks are going to relax their lending standards at all to try and keep the mortgage market going at the pace that it has been over the last few years because one of the problems is, of course, people can't get the loans they need.

LAMALFA: Yes, credit has been tight, and that's a result of the financial crisis. It appears to be easing, the credit situation. The government is really leaning on the mortgage industry in order to, as the industry says, expand the credit box. And there have been a number of announcements in recent weeks from firms that are reducing their minimum FICO scores, in some cases all the way down to 550.

Very recently, anything below a 660 was essentially unacceptable outside of the FHA program.

HOBSON: Tom, there are all these reasons that you've talked about why people might not want to sell or buy right now. Then there's the question of press, and if people start hearing that the mortgage market is not doing very well, they might, just based on that, decide that they don't want to go out and buy a house.

LAMALFA: Oh I concur, and in fact I think that's happening, and I think that that's been aggravated as a result of the experience that so many people have seen with the financial crisis and the decline of, you know, roughly a third of the value of properties in the five-year period after 2008.

YOUNG: Tom LaMalfa is a mortgage market analyst with TSL Consulting in Cleveland. Tom, thanks so much.

LAMALFA: Thank you, Jeremy. Transcript provided by NPR, Copyright NPR.