Housing starts and home buying, the light on the horizon

Written by Dan Putney Managing Director, Mortgage solutions
Housing Starts and Home Buying, the Light on the Horizon

New home starts have historically been an indicator of economic recovery, but new builds and remodels have failed to rebound to the levels witnessed prior to the great recession. As a result, Lawrence Yun, Chief Economist for the National Association of REALTORS®, predicts a stagnant price pool for new homes over the course of 2020 with prices rising just 0.02%.

Yun’s predictions, however, are not consistent with findings from property data firm, CoreLogic. According to the company’s data, home prices should rise over 5 percent by September of 2020.

The trouble-spot in the market remains the dearth of entry-level homes. Redfin reports that homeowners are staying in their homes longer, an average of thirteen years—5 years longer than the average length of residency in 2010. Combine the latent release of properties with the slow growth in home starts, and it is easy to see home prices rising in 2020, particularly for those priced at the lower end of a given market.

Other factors could also stir higher home pricing in 2020 as current low interest rates and rising income levels are inspiring many, including the previously buying-averse Millennial generation, to join the ranks of homeowners.

Fortunately, hope for the home buyer is on the horizon. New home starts rose 3.8% to close out October of 2019, the highest level seen since 2007. Single-family completions were also on the rise, growing 4.5% by the end of the quarter while multi-family completions jumped 27.3%.

As buyers make new-construction purchases, existing homes come on the market, spurring additional buying activity. A key indicator of the market strength is the “months supply” of properties, a measure that tracks the time it would take to sell off existing home inventory. This metric fell to 3.9 months in October, a factor that has many experts feeling positive about the year ahead.

Improving sales activity will lead to an uptick in mortgage demand as the year progresses but given the number of Millennials entering the real estate market, community banks and credit unions need to consider the state of their digital capabilities. According to data from, Millennials accounted for 46% of home originations in the third quarter of 2019.
Millennials are a technologically disruptive generation and expect to complete tasks, even those associated with applying for a mortgage, online. According to research, 92% of all borrowers start the mortgage process with online research as they search for the best rate. But here is the kicker, Millennials are twice as likely as Boomers to continue the process through digital channels, applying for financing online.

In 2020, community banks and credit unions should consider expanding their local and nearby presence to include digital channels. At a minimum, publishing mortgage rates and keeping them current is essential to catch the attention of ready homebuyers, but snagging the bulk of the market may take more effort with the addition of rate calculators and automation capabilities that allow applicants to apply for loans online and receive rapid approvals.

Written by
Dan Putney

Dan Putney

Managing Director, Mortgage solutions

Dan Putney is the Managing Director for the Northeast Region within Finastra’s North American Community Markets division. With more than two decades of knowledge and expertise in the mortgage and mortgage technology industries, he serves as the firm’s Center of Excellence for the Mortgage business.

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