Nationwide: Coronavirus risk emergent, but housing fundamentals stay strong

While concerns of a coronavirus-driven economic slowdown growing, data from the latest Health of Housing Markets report from national insurance company Nationwide projects the housing sector to remain a source of growth in 2020.

Of the 400 metropolitan statistical areas evaluated in Nationwide’s report, 233 (58%) achieved a positive housing market rating so far in the first quarter. Just 29 metros have negative ratings, while 138 are in the “neutral” category.

“While the risk has significantly increased that the coronavirus outbreak will disrupt economic activity, our research indicates that housing will be one of the economy’s brightest spots in 2020,” said Nationwide senior vice president and chief economist David Berson. “Strong, underlying housing demand factors, including above-trend household growth, solid job gains and declining mortgage rates, are driving what is looking to be a strong annual performance.”

Berson did note that, with coronavirus impacts on the horizon, downside risks loom from eased underwriting standards for government-insured and jumbo loans.

“FHA and VA loans now comprise more than 23 percent of the nearly 40 million mortgages in the U.S. — the highest share since 2001,” Berson said. “While delinquency rates for these government-insured and jumbo loans are low today, deteriorating economic conditions could put these loans at rising risk.”

As for looking forward, the report’s proprietary Leading Index of Healthy Housing Markets — which evaluates the near-term performance of housing markets based upon current health indicators — was at 106.1 at the end of 2019. That’s well above the neutral level of 100, with the fourth quarter marking the sixth-straight quarterly gain for the index after rising from 100.7 in second quarter of 2018.

The rosy outlook remains driven by growing incomes, historically low unemployment and above-trend household formations. Meanwhile, serious delinquency rates have declined for six consecutive quarters, and while demand is fueling acceleration in house prices, price growth is hovering nearly the long-term average. This, combined with low mortgage rates, has kept housing affordability positive.


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