Despite some softening housing indicators, Moody’s Analytics predicted this week that the housing market will remain strong through 2014 and 2015.
“The fundamental drivers of housing remain solid,” Moody’s reported in its monthly ResiLandscape report. “Employers are adding jobs, housing is still affordable and inventories of homes are low. Home sales, homebuilding and house prices will all head up this year and strengthen further in 2014 and 2015 as housing helps to fuel the broader economy’s expansion. These positive factors will offset the dampening impact of rising mortgage interest rates on demand for housing, although a faster than
expected run-up in rates could derail the housing rebound.”
Moody’s predicted that rising interest rates will cause a drop in refinancing, which in turn will prompt banks to loosen credit and underwriting requirements in an effort to generate new business. Pending home sales are still high and supplies of new homes are tight.
“The rapid price gains of the last year cannot be sustained and we expect the pace to decline substantially in the second half of this year,” Moody’s reported. “Strong investor demand helped to fuel those gains and investors are starting to
pull back as the supply of inexpensive distressed homes has dried up. A slower pace is a positive for housing demand and will help to keep affordability from further eroding.”
These conditions should “ignite a virtuous cycle,” in which homebuilding stimulates other sectors of the economy, including the manufacturing, retail and financial sectors, the report predicted. “Stronger job growth will in turn generate stronger housing demand. Indeed, despite some softening during the second quarter, housing is already a driver of broader economic growth.”
Moody’s warned that the greatest threat to this growth could come in the form of rapidly increasing mortgage rates that disrupt the housing recovery.