Housing’s new normal: Low interest rates, shifting demand, coming wave of new homebuyers

Speaking before a packed house gathered Wednesday on the 7th floor of the Newseum in Washington, D.C., CoreLogic’s chief economist, Frank Nothaft, told the crowd of housing insiders that anyone waiting for any dramatic shifts in housing, interest rates, or otherwise is likely to be left waiting.

Nothaft, speaking at the “Data, Demand, and Demographics: A Symposium on Housing Finance” presented by the Urban Institute and CoreLogic, told the crowd that housing is entering a new normal.

And that new normal means interest rates will be staying low, well below 5% for the next several years, amid shifting demographics bringing new homebuyers to the market.

“I think mortgage rates are going to be with us for a long period of time,” Nothaft said. “The expectation in capital markets is no rate change from the Federal Open Markets Committee today. We may see an increase in federal funds rate in December.”

Nothaft added that Wednesday’s FOMC announcement could provide more of an indication on the willingness of FOMC members to increase rates before the year is out.

But even if the FOMC does raise rates, mortgage interest rates will stay low, Nothaft said, but perhaps not as “dirt cheap” as they are right now.

“I think we’ll see rates rise from dirt cheap to a very low level as we move into next year, still remaining below 4% all through next year,” Nothaft said. “We’re evolving into a new era in mortgage rates.”

Nothaft also projects four other trends that will emerge over the next several years that will shape housing’s new normal.

Chief among those is a shift in household composition and a change in demographics as more Millennials approach homebuying age.

Nothaft presented a chart during his presentation that highlighted the difference between the largest age cohort in the U.S. population, ages 24 and 25, and the average age of the first-time homebuyer, which is 31.

The bottom line: Millennial buyers are coming, and they’re coming relatively soon.

Click the image below for a graphic breakdown of population age.

 

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