Three trends, according to Freddie Macâ€™s recently released November 2016 Insight, are currently informing the movement of the housing market: income inequality, and rising land costs and use restrictions.
â€śThese three longstanding trendsâ€”ones that have been building quietly over decadesâ€”ultimately will have more influence on housing than the week-to-week oscillations of mortgage rates or any of a host of other short-term indicators of housing activity,â€ť says Sean Becketti, Freddie Macâ€™s chief economist. â€śThese three trends affect housing and mortgage markets through their influence on both the demand for and the supply of housing.
â€śThe change in income distribution shifts the demand for housingâ€”both the total demand for homeownership and the demand for different types of housing. The rising share of land costs shifts the supply of housingâ€”houses cost more than before because of the higher cost of the land component of the house. And land use restrictions limit the supply of more-affordable housing in richer states. No analysis of the future housing market is complete without considering them.â€ť
How will these trends bear out? Freddie Mac forecasts five potential outcomes: a boost to the homeownership rate, if future changes in income distribution are similar to changes over the last four decades; the return of homeownership as a means to wealth creation, most pronounced in richer states; an increase in the share of upper-income households and a decrease in the share of lower- and middle-income households, shifting shares of mortgage finance supplied by FHA/VA, GSEs and the private sector; an increase in housing inequality, especially in cities; and an increase in home price volatility, especially where buildable land is scarce.
For more information, please visit www.freddiemac.com.
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