OREANDA-NEWS. The health of U. S. housing is relatively robust heading into the halfway mark of the year, though a Fitch Ratings special report discusses some proverbial minor cracks in the foundation that have surfaced.

2017 is shaping up to be a mirror image of 2016 for homebuilders. With interest rates set to rise further, demographics and employment growth should be at least as positive next year. This bodes well for first time buyers as they are representing a higher portion of housing purchases with qualification standards loosening further. One potential challenge for the housing recovery is labor shortages, which are more acute than usual for this stage in a recovery and could persist and become more widespread.

Home prices nationally appear to be on solid footing as far as RMBS is concerned, though some overvalued regional pockets are growing. Home prices in San Francisco, Phoenix and Las Vegas are all roughly 15% overvalued while most major markets in Texas are overpriced by roughly 10-15%. Another headwind for some undervalued housing markets is shadow inventory. New York's distressed inventory in particular remains roughly three times higher than the level was in 2007. Additionally, the distressed supply will remain a drag in New York until the end of 2018.

The somewhat uneven forward movement for single-family housing is in contrast to multifamily REITs. Apartments are still in favor over homeownership (particularly among millennials), a trend Fitch expects will be a continued plus for multifamily REITs. That the sector is still able to deliver record rents and occupancies in spite of a fairly tepid recovery for the broader economy is due in large part to the lower home ownership rate.

A common question among CMBS investors is whether multifamily properties are past their peak, to which Fitch says not yet. Even though they are decelerating, multifamily operating fundamentals remain amongst the best in commercial real estate. Millennials are now the largest segment of the US population, which should be a plus for multifamily CMBS with many millennials likely to opt for renting apartments before buying homes. That said, markets like Seattle, Washington D. C. and Austin may be susceptible to declines due to additional supply coming online in the near term while supply is causing growth in New York and San Francisco to slow. Oil-rich markets like parts of North Dakota and Texas are also areas of concern. Overall, rent growth is slowing and vacancies are slowly increasing.

Fitch will be holding a webcast tomorrow at 10AM ET to discuss its outlook for major U. S. housing segments for the remainder of this year. Click on the link below if you wish to register for this event. There will be a brief Q&A session after the prepared presentation, which is expected to last approximately 45 minutes.