Housing market outlook dips into neutral territory on affordability, natural disasters

Recent data from Nationwide’s Health of Housing Markets Report (HoHM Report) show a further worsening of housing market sustainability. For the first time since 2010, Nationwide’s proprietary Leading Index of Healthy Housing Markets (LIHHM) does not forecast a positive outlook for the housing sector.

LIHHM is unusual among housing market reports because it is a forward-looking measure of housing market sustainability. The dip into neutral territory hinges largely on deteriorating housing affordability as well as a sluggish pace of household growth.

“Housing affordability concerns have been building within the housing market for several years,” said David Berson, Nationwide senior vice president and chief economist. “For the first time since the recovery started, our affordability measures deteriorated enough to drop the national market outlook out of positive and into neutral territory.”

Natural disasters in 2017 also played a role in lowering the market outlook to neutral. Damaged homes and displaced households raised mortgage delinquency rates in several MSAs in Florida and Texas.

“The silver lining to this unfortunate story is that this should be a temporary downturn in the impacted coastal areas of Florida and Texas,” Berson said. “We should see delinquency rates normalize in coming quarters, which will help to boost the national outlook, perhaps back into positive territory.”

On the upside, job growth and rising wages have kept demand for housing robust despite rising affordability concerns. Moreover, aside from the localized hurricane impacts, serious delinquency rates remain low and suggest a healthy consumer balance sheet for mortgage debt.

Healthy regional markets continue

Despite a neutral outlook on the national housing market, Berson says that most metro areas across the country are healthy.

“Job growth and incomes remain strong across the country, helping to maintain healthy markets on a regional level,” Berson said. “We did, however, see an uptick in the number of local housing markets that slipped from positive to neutral, but that was expected given sustained rapid price increases in those areas.

“Next quarter’s HoHM Report will be an interesting barometer of which direction the market is heading, both on a national and regional scale.”

The top 10 metro areas in the index, in order, are: Casper, Wyo.; Farmington, N.M.; Alexandria, La.; Canton–Massillon, Ohio; Springfield, Ohio; Cedar Rapids, Iowa; Montgomery Co., Pa.; Trenton, N.J.; Killeen–Temple, Texas; and, Lawrence, Kan.

The bottom 10 are: Bismarck, N.D.; Victoria, Texas; Anchorage, Alaska; Lewiston, Idaho-Wash.; Corpus Christi, Texas; Billings, Mont.; Pueblo, Colo.; San Jose–Santa Clara, Calif.; Kennewick–Richland, Wash.; and, Nassau/Suffolk Co., N.Y.