April 2016 - Tech Revolution

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TH E M R EP O RT | 57 O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T ANALYTICS THE LATEST 5 Ways Oil Hits Housing Today's exceedingly low energy prices fuel a quintet of implications (some good, some bad), Capital Economics says. T he mortgage industry has been monitoring the huge decline in oil prices closely to see if it will have a negative effect on housing, but the truth is, there are both good and bad out- comes to this new crisis. Housing markets that are major producers of oil will be hit hardest by lower oil prices, while demand will decline for high-end homes from foreign buyers, according to a report from Capital Economics. "On the one hand, there are a handful of states where lower oil and gas prices will have an adverse short-term impact on local labor markets and confidence, with negative implications for housing," the report stated. "In addition, demand in some states might be dented by a dip in for - eign buyer numbers. But in most states, the drop in energy prices should bring benefits in the form of a modest boost to household disposable incomes." Capital Economics said the lower oil prices will have the following effects on the housing market: • The most direct impact will be on those states with a significant oil and gas industry, where a collapse in investment is already feeding through into a deteriorating economic backdrop. For example, six of the eight states we identify as being vulnerable to lower oil prices are in the bottom 10 for personal income growth. • In those states, weaker labor markets and income growth will feed through to lower levels of activity and slower house price growth. Homes are already taking longer to sell in three of the most exposed states. • That said, with the exception of North Dakota, the impact is unlikely to be large. In that state, a building boom that followed the shale revolution is quickly turning into a bust. • The impact of lower oil and equity prices will also hit the purchasing power of very wealthy individuals. Combined with the strong dollar, that is likely to cut demand from foreign buyers and lead to a slowdown in the very high end of the market. • So the impact outside of states not directly exposed to oil is likely to take time to come through and be small. But, overall, low oil prices support Capital Economics' assertion that housing market activity and prices are set for further gains over the next couple of years. Capital Economics did find a silver lining among the lower oil prices: "The money households save on gas and other energy costs will allow them to spend more on housing. That provides support for our view that hous - ing market activity and prices will rise steadily over the next couple of years." "The fall in oil prices has the potential to impact the hous- ing market," Capital Economics noted. "But with some states set to lose out, while others benefit, the overall impact is unlikely to be large. That said, unless households simply save all the income freed up by lower gasoline prices, on balance, the housing market stands to benefit from lower oil prices." Owner, Appraiser Value Gap Opens The disparity widened for the first time in six months. W hat homeowners think their houses are worth and what they're actu - ally worth are slightly off nation- ally, and the gap between owner estimates and real appraisals widened in February for the first time in six months, according to the latest Home Price Perception Index from Quicken Loans. The latest HPPI, which com - pares actual appraised values to what refinancing homeowners estimated their home was worth at the beginning of the mortgage process, showed that while home values increased 1.51 percent in February and rose 3.89 percent year-over-year, appraised values were almost 2 percent lower than homeowner expectations national - ly. That gap was more than twice that in the West, particularly in San Jose, where appraisals were 4.35 percent higher than expected. Denver and San Francisco also saw more than 3 percent home - owner overestimation. The balance comes from the other side of the country, where borrowers more noticeably under - valued their homes. Philadelphia led this side of the coin, as homeowners there undervalued their properties by 3.64 percent. Neighboring Baltimore also saw an appraisal gap in their favor by more than 3 percent. The closest appraisal-to-value numbers came from homeowners in Miami, who valued their properties a mere 0.13 percent above what they're worth on the market. Quicken Loans' Chief Economist Bob Walters said that despite the new numbers, there's no cause for concern here. "While it is always disappointing for homeowners to learn they don't have quite the home equity they expected, the national HPPI is still within a normal range," Walters said. "In an ever-changing real estate market, home values fluctuate and these changes are most quickly realized by appraisers who are evaluating local sales every single day." Walters also said that the general lack of inventory still af - fects home values "as eager buyers compete for a small selection of homes," he said. However, with a gener - ally sound market in play, and as more homeowners gain equity, the number of homeowners able to sell their homes and buy new ones increases. "We're seeing the benefits of this virtuous cycle in rising home prices, which is also being greatly aided by historically low mortgage rates," he said.

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