LAS VEGAS – The housing market will continue its slow grind, Fannie Mae Chief Economist Doug Duncan told nearly 400 attendees at ACUMA's Annual Conference at the Bellagio Hotel.
Several economic factors have resulted in public perception that the economy is on the wrong track, which has hampered housing recovery, he said. Labor compensation hasn't increased since the recession, so despite statistics that report a recovering economy, workers aren't seeing improvement in their household budgets.
To expand credit, the key issue continues to be income growth, he added.
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Additionally, low interest rates have contributed to household savings rates, which have remained high since the recession. Without compounding interest gains, investors have instead been forced to put more money away to achieve investment goals, Duncan said.
Baby boomers comprise only 25% of the population but own 50% of housing wealth, Duncan said. Boomers aren't retiring to condos in metro areas as previously predicted, opting instead to remain in their suburban homes. However, they have been remodeling, drawing on home equity. Increasingly, he said, boomer remodeling projects have come as the result of age-related disability.
Gen X currently has the largest average mortgage balance, he said, and the generation is a good target market for refinancing or upgrading to larger, more expensive homes.
"They are meaningful in the market today, but they are not where the market will grow," he said.
Despite talk that millennials won't purchase homes in large numbers, Duncan said the generation does aspire to home ownership. More than 90% of millennial renters surveyed said they plan to someday purchase a home, he said.
Millennials are slowly but surely moving out of their parents' homes as they get jobs and earn larger incomes. Interestingly, Duncan said parents of millennials didn't mind that their grown adult children remained at home as much as previous generations, because parents were also struggling financially and appreciated millennial contributions to household income.
While household growth is stagnant, Duncan said Fannie Mae expects it to improve during the second half of this decade as millennials not only move out of their parents' homes, but also get married and start families.
The economist also said Fannie Mae is preparing a report on so-called boomerang home buyers, who lost their homes in the housing bust but have since improved their credit scores and re-entered the housing market. That report will be released later this month, he said.
In speaking about interest rates, Duncan cautioned credit unions that interest rates have been slowly decreasing since the 1980s, so only employees who have been on the job 30 years or more have experience managing credit unions in a rising rate environment.
"In your risk management, ask yourself if you have assumptions built in that assume a declining rate environment," he said.
Duncan added he doesn't think rates will rise much, but they won't continue to decline.
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