January 11, 2023

One Big Thing: Housing’s Cloudy Forecast

Housing Policy
Capital Commentary

Welcome to Capital Commentary 2023.

We’ve added reader surveys so we can be more responsive to your wants and needs.

Let’s get started.

1. One Big Thing: Housing’s Cloudy Forecast

What’s new: Capital Commentary asked leading housing authorities to give their insights on the upcoming year from the perspective of looking back on 2023 from the end of the year rather than the beginning.

  • Their verdict: Dark clouds, few silver linings.

Why it matters: Policymakers, trade associations, corporate chieftains and loan officers will develop priorities based on their assumptions of the future of the nation’s housing market. Our experts offered their insights into the industry’s 2023 principal challenges, potential positive outcomes and advice for policymakers.

2. Shortages, Interest Rates Top Woes

What’s new is what’s old: At the end of 2023, we will still need more homes to meet the nation’s demand for affordable shelter.

Why it matters: Without additional homes, the housing cost for renters and want-to-be homeowners will remain out of reach for far too many families.

By the numbers: Bloomberg estimates we have a 3.8-million-unit home shortage. Reaching equilibrium will require increasing our home construction by 50% over the next decade.

“Addressing this dilemma could well be the defining public-policy challenge of the next few decades,” according to Bloomberg.

A lack of homes is one factor imperiling housing’s future, say our experts. There are other worries, too.

What they’re saying:

  • Robert Dietz, Chief Economist for the National Association of Home Builders, concludes that “a housing market plagued by ongoing high mortgage rates, inflation woes and rising unemployment combined with a structural housing shortage” will make housing unaffordable for many this year.
  • David Stevens, the former Mortgage Bankers Association CEO and FHA Commissioner, sees interest rates and a recession as dominant barriers to a vibrant housing market in the first half of the year. “By the end of the year, it will be inventory and jobs,” he said.
  • Former Ginnie Mae President Ted Tozer puts the onus on loan officers when he suggests the biggest obstacle facing homeownership this year will be “convincing borrowers to use five- and seven-year ARMs” to finance their home purchases.

3. Some Silver Linings

Even a dark cloud can have silver linings. Will anything good happen for housing in 2023? Our panelists found some possibilities.

The optimists:

  • David Dworkin, President and CEO of the National Housing Conference, cites “increased awareness of the affordable housing crisis and its impact on inflation” as a net positive for the year.
  • Richard Cooperstein, Director of Alliances and Policy at Andrew Davidson & Co., predicts housing barriers for underserved populations will be reduced by the use of “expanding consumer credit data used in underwriting and pricing mortgage risk.”
  • Dietz and Stevens both see falling interest rates in the latter half of the year.

Yes, but: Not everyone sees a silver lining.

  • Isaac Boltansky, Director of Policy Research at BTIG, when asked what was likely to go right for housing in 2023, gave a two-word answer:

            “Not much.”

With a divided Congress, housing policy will largely be determined by decisions made at the Federal Reserve Board, Federal Housing Finance Agency (FHFA), Federal Housing Administration (FHA) and the White House.

4. Praise for Policymakers

Good government? Our panelists think policymakers will have some successes tackling housing’s problems in the new year.

Why it matters: With a divided Congress, housing policy will largely be determined by decisions made at the Federal Reserve Board, Federal Housing Finance Agency (FHFA), Federal Housing Administration (FHA) and the White House. There is reason for optimism, suggest most of those interviewed.

The bottom line:

  • The Fed will tame inflation with only a mild recession, said Tozer.
  • FHFA and FHA were “thoughtful about pricing. It’s not a demand crisis,” wrote Boltansky.
  • “Zoning reforms are getting more attention” at all levels of government, “but more policy changes are needed,” said NAHB’s Dietz.
  • Regulators in 2023 are focused on “prudently expanding access” to credit, according to Cooperstein.

On the other hand, no one expressed any confidence that Congress will successfully solve our affordable housing problems.

5. Now It’s Your Turn

By the numbers: In November 2022, FHFA announced a new Conforming Loan Limit (CLL) for 1-unit properties of $726,200.

  • We’d like your opinion on whether the CLL for 2024 will be higher, lower or remain the same. This survey has been closed.

In the next issue of Capital Commentary, we will compare answers from readers with those of the panel of housing experts who responded to the same question.

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About Arch MI’s Capital Commentary

Capital Commentary newsletter reports on the public policy issues shaping the housing industry’s future. Each issue presents insights from a team led by Kirk Willison.

About Arch MI’s PolicyCast

PolicyCast — a video podcast series hosted by Kirk Willison — enables mortgage professionals to keep on top of the issues shaping the future of housing and the new policy initiatives under consideration in Washington, D.C., the state capitals and the financial markets.

About Kirk Willison

As VP of Government and Industry Relations for Arch MI and a mortgage finance expert with more than 25 years in government relations, Kirk speaks candidly with an array of the most influential industry and policy thought leaders in the nation.

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