Stronger Economy Should Attract Buyers

Sam Silverstein  |   May 8, 2015

The growing tide of good economic news means the days of rock-bottom mortgage rates are over, but the housing market is nevertheless well-positioned for growth, the chief economist of the Mortgage Bankers Association says.

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Although interest rates will head up as policymakers ease the accommodations they have been providing to boost the weak economy, wages are likely to also increase and new household formation is on the rise, creating an environment that, on balance, is healthy for housing, says Michael C. Fratantoni, who spoke at a recent REALTOR® University event at NAR's Washington office.

One of Fratantoni's chief reasons for optimism is the improving job market. The number of job-seekers per open position is down to about two from a post-economic crisis high of nearly seven, raising pressure on employers to raise wages in order to compete for workers, he says.

"We think that the improvements in the job market that we've already experienced, and that we're likely to experience the remainder of this year and into next year, are going to be enough to offset any headwind from that rise in rates," Fratantoni says.

Another positive factor Fratantoni points to is that more younger buyers are moving out on their own as the job market strengthens. Most of the new households being formed now are renters, but that will change as these people gain experience living on their own, he predicted. "The numbers are so large that it’s going to be a huge positive for the market once they get there."

Even as he foresees robust conditions for the housing market going forward, Fratantoni warns that the interest rate environment will be unsettled for lenders and borrowers alike in the near term. "I think there’s room here for really a substantial increase in rate volatility over the next several months to a year" as banks try to predict when the Federal Reserve will act to raise interest rates, he says. "You're going to feel it when you’re talking to your buyers."

Source: Realtor Magazine