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The National Housing Market Today

If there’s one word that describes the current housing market nationwide, it’s “strong.” Demand is very high. A strong economy, with low unemployment and strong gross domestic product (GDP) has put money in consumers' pockets.

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The booming market has gained the interest of investors, as well as first-time buyers and current homeowners looking to trade up. Home prices have been appreciating for the past six years, which is another factor spurring consumers to enter the mortgage market. According to The Hill, real prices of homes have climbed 25% since the low hit in early 2012.

In addition, demographic trends favor home-buying with the Millennial generation moving into home-buying years. The government housing agencies, Fannie Mae and Freddie Mac, are underwriting affordable housing for middle-income consumers.

Are Clouds on the Horizon?

With all this good news, is there any neutral or bad news? Well, there could be. Mortgage note buyers realize that the housing market goes in cycles, as do other markets like stocks and bonds. So the very fact that the housing market nationwide is in a boom cycle means that a pullback is likely at some point.

Even in local markets where the demand is high and there's room for new housing stock, the housing market is likely to follow national trends, as it has done in the past. When The Hill examined housing data for the 50 biggest metropolitan areas, housing prices rose across the board in the 2002-2006 period and then fell during the Great Recession’s runup, duration, and aftermath, from 2007-2011. The rise and fall was true no matter what construction trends were doing.

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Will Affordability Concerns Stop the Boom?

Rising home prices can be bad news for prospective new homeowners; they may be priced out. But higher home prices are only one factor that can put a damper on affordability. The other is rising interest rates, which makes mortgage payments more expensive.

The Federal Reserve began to move on a nearly zero interest rate level in late 2016 and has been gradually raising rates ever since. The Federal Reserve Open Market Committee has also indicated that it plans to hike interest rates in later 2018 and 2019 as well.

Many housing market observers are concerned that rising rates will put multiple crimps in the housing market. First, demand from prospective first-time buyers may slacken due to rising unaffordability of mortgages. Second, homeowners with adjustable-rate mortgages may get hit with higher payments, raising the risk of default and reducing the chance that they will try to move up.

Rising interest rates are felt across the board by consumers, as their credit card debt and other loan debt also becomes more expensive. For many homeowners, these rising amounts may increase the risk of mortgage default.

Interest rate shocks can also put a damper on the overall economy, ushering in a cycle of rising unemployment and lessening gross domestic product.

So overall, the housing market is notably strong and has been so for six years. But the housing market is cyclical, so asset buyers should take note.

Mortgage Lenders Need to Manage Their Assets

In good times and bad, mortgage lenders need to manage their assets. Buying mortgage portfolios and selling mortgage portfolios can allow your institution to profit from good times in the housing market and provide protection against a downturn led by slackening demand and rising interest rates.