3 quick takeaways from the mortgage conference happening right now

3 quick takeaways from the mortgage conference happening right now

Tidbits from SourceMedia Mortgage Servicing conference

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Barclays: Housing supply could normalize in 2014

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If construction remains at or slightly above last year’s levels, and household formation rates rise to 1.1 million, the supply of housing will begin to normalize in two to four years, analysts at Barclays Capital estimate.

After 2007, household formation plummeted to 300,000 to 500,000 per year from its historical rate of 1.25 million because of weak availability of credit, among other things. It has yet to recover. The analysts say household formation rates — a function of population growth, overall economic activity and home affordability — should determine the fate of the housing market in coming years.

They also expect a 3% to 4% decline in home prices through March and then a 1% appreciation this year and in 2013, followed by a few years of 2% to 3% growth.

However, a broad-based stabilization in home prices is unlikely until overall excess supply starts dwindling. "We think this will be achievable only if household formation exceeds net construction for a sustained period," Barclays says. "Programs like the FHFA’s REO rental program can help on the margin in certain areas but will not have a big enough sustained impact."

Alleviating the excess supply by increasing household formation is extremely difficult to achieve by policy tools, especially in an environment with high barriers to credit. "Keeping interest rates low can help, but only to a certain extent if underwriting criteria remain tight," analysts say.

However, loosening underwriting guidelines is unlikely considering the abundance of bad underwriting in recent memory and that most new mortgages are backed by the government.

jhilley@housingwire.com

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