Housing demand flat despite Fed's actions

by Diana Aqra14 Jun 2013

The Fed’s program (QE3) that began in Fall 2012 and made US$ 40bn in monthly open-ended MBS purchases does not appear to have helped housing as much as it was expected to, according to an industry analyst.

Despite some progress over the last year, as measured by the Mortgage Bankers Association mortgage applications index, housing demand is still at all-time historic lows, according to Robert Keiser, vice president of Global Markets Intelligence for S&P Capital IQ.

According to data compiled by the S&P group, the MBA applications index has hovered in the 160-to-200 range over the last several years, only recently in 2013 rising above the 200 mark. The index is still dramatically lower than when it was 500 before the crash, and much lower than what the industry would have expected at this point in QE3, Keiser said.

Housing formation, which is stimulated by real job growth, is the real driver to increase housing demand, said Michael Souers, senior equity industry analyst during an S&P teleconference Thursday.

Unfortunately, the “Fed can’t print jobs,” they can only print money, Souers added.  

What’s more, the overwhelming majority of jobs that have been added since the end of 2009 have been in sectors that only marginally add to housing demand. Souers found that 89% of all job growth during the last three-or-so years went to people in only two age-ranges; 72% went to people who were 55 and older and 17% went to people from 16 to 24. These are two age ranges that do not typically buy homes, at least first-time homes, which are key to housing recovery.

In April, first-time home purchases as a percentage of all home purchases dropped to a four-year low, 29%, Souers mentioned. That is compared to 32% investor purchases.  During healthy housing market times, first-time home buyers comprise about 40% of the market, Souers said.

As rates rise and housing affordability decreases, we may continue to see more sellers than buyers come to the market, he added.

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