Dr. Frank Nothaft is Chief Economist at CoreLogic, a role he assumed in 2015. As Chief Economist, Nothaft leads the company’s economics team, as well as its research and insights strategy using CoreLogic’s data and analytics resources, including the CoreLogic-Case-Shiller Home Price Index™ and other indices and services. Nothaft earned his degree in mathematics and computer science from New York University, and he holds a Ph.D. in economics from Columbia University. He frequently appears on radio and television programs and is regularly quoted in The Wall Street Journal and New York Times.
What first attracted you to the study of economics? There’s nothing better than an economic crisis to generate interest in the field of economics. During my last year as an undergraduate at NYU, the price of oil and gasoline shot up and triggered the severe 1975-76 recession. The unemployment rate jumped up to just over 9 percent, the highest in 35 years. Since good-paying jobs for a new graduate were few and far between, this provided an incentive to consider graduate school—in economic terms, the “opportunity cost” of attending graduate school was relatively low.
I had a double major in mathematics and computer science with a minor in economics. What I liked most about math was solving problems, and economic models are applied math problems. As a social science, economics offered an opportunity to analyze the labor market trauma and develop policy solutions to challenges people were facing. So I decided to apply for graduate school in economics to solve the world’s economic problems! Columbia offered me a fellowship to study there, which made my decision easier.
For market watchers who are trying to gauge the health of the housing market, what are the most important indicators to keep an eye on? One gauge of market health is whether there is a good balance among home prices, rents, and household income. Comparing these three—price, rent, and income—relative to the ‘norm’ for a local market provides an indication of whether the market values are sustainable.
But that indicator should not be looked at in isolation. Another metric is what has been happening in the local market with job loss and gain, and the performance of mortgage loans. With delinquency and foreclosure rates at a decade low in most markets, it is important to keep an eye on the transition from current-to-D30, D30-to-D60, D60-to-D90, and D90-to-D120. We have noticed that transition from current to past due for FHA loans has ticked up.
Other metrics to keep an eye on are time-on-market for homes on the market for sale, vacancy rates, and overly optimistic expectations of future appreciation on the part of consumers.
And if you start seeing a lot of infomercials on becoming a millionaire by flipping properties, that’s a warning sign of an overvalued market in my book.
Thus far, how does 2017 stack up to 2016 in terms of the growth seen in the housing and mortgage markets? The economic recovery clearly has some momentum, and the consensus view among economists is for growth of 2.0 to 2.5 percent in 2017, with more job creation than in 2016. That’s good for the housing market, because the unemployment rate is at a 10-year low, family incomes are rising, and there is broad optimism that economic growth will be maintained into 2018. Further, the large millennial cohort will continue to add to both rental and home purchase demand. These factors offset the negative effect on home sales and construction from slightly higher mortgage rates. We expect a modest (less than 2 percent) increase in home sales in 2017, with single-family starts up almost 10 percent.
Home mortgage credit will be a mixed bag—originations down about 20 percent due to the falloff in refinance, but mortgage debt outstanding continuing to slowly grow as home purchase volume rises. HELOC lending should rise too, as home-price growth has rebuilt home equity; homeowners who need to finance home improvements will be reluctant to refinance their low-rate first-lien mortgage, and will turn to second-lien credit.