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A Healthier Housing Market in 2016 May Put the Crunch on Affordability for Some Buyers

By Housing Industry Forum Staff | January 21, 2016


A Healthier Housing Market in 2016 May Put the Crunch on Affordability for Some BuyersLast week, Fannie Mae Chief Economist Doug Duncan and the Fannie Mae Economic & Strategic Research (ESR) Group released their full-year outlook for the U.S. economy and housing and mortgage markets. Overall, they are positive on 2016, noting the housing recovery will likely march on throughout the year amid continued modest economic growth.

Even so, current housing affordability challenges are expected to create some sluggishness in home sales activity in 2016. According to ESR, strong home price gains continue to outpace real household income growth, limiting the ability of some consumers to buy a home.

“Despite our expectation of only a small rise in mortgage rates, home price and income dynamics should inhibit home purchase affordability. In addition, continued rent increases will hinder renters’ ability to save for down payments,” says Duncan.

Compounding the problem is the current shortage of starter homes available for sale, which is keeping many potential first-time buyers – who are a key driver of housing growth – from entering the market.

"At the lower end, where the housing market really needs to build, builders aren't building to that space — so we've got a real supply problem," Duncan noted on CNBC’s Closing Bell (video below).


This doesn’t suggest a full stop to the momentum that housing gained in 2015, according to ESR. As the labor market continues to tighten, both household income and job security are likely to get a boost, helping to chip away at that affordability barrier. Additionally, mortgage lenders say they expect to further relax their lending standards, which will broaden access to mortgage credit for qualified borrowers who are ready to buy a home.

How does ESR’s overall outlook for 2016 compare to last year’s housing market? “We think it will be a better year than 2015, but it won't grow as fast as we saw in 2015,” Duncan told Yahoo! Finance.

“While we expect the pace of improvement in total home sales to moderate to about 4 percent this year, the gain in single-family starts should accelerate to 17 percent, if easing housing supply shortages and a continued strong pace of household formation pan out. This should help to drive economic growth again in 2016,” he adds.

Estimates, forecasts and other views expressed in this article should not be construed as indicating Fannie Mae’s expected results, are based on a number of assumptions and may change without notice. How this information affects Fannie Mae will depend on many factors. Neither Fannie Mae nor its Economic & Strategic Research (ESR) Group guarantees that the information in this article is accurate, current or suitable for any particular purpose. Changes in the assumptions or underlying information could produce materially different results. The ESR Group’s views expressed in this article speak only as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.