Home Sales Struggle But Improvement Seen

Dated: 05/17/2014

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DAILY REAL ESTATE NEWS | FRIDAY, MAY 16, 2014
Two years into the economic recovery, residential home sales are struggling. But because of demographic and other trends, long-term growth prospects remain good, NAR Chief Economist Lawrence Yun said Thursday at the REALTOR® Party Convention & Trade Expo.

At the Residential Economic Issues & Trends Forum, Yun forecast 4.9 million existing-home sales this year, a roughly 3 percent drop from last year and a signal that the recovery in home sales that started two years ago is flagging.

Weakness in the broader economy is part of the problem. Economic growth turned negative in the first quarter of 2014, by about a percentage point, in part because severe winter weather hampered consumption. The rest of the year should be better, Yun said, but growth will remain tepid: only about 2.1 percent rather than the 3 percent that analysts would like to see.

Home sales were hit by the cold weather, too, although a portion of the stalled activity is expected to return now that the weather is improving.

The more fundamental problem is the continuing tough time households face getting financing and the lack of inventory, which is hurting affordability by keeping prices rising at a time when interest rates are going up as well.

Yun is forecasting a national median home price of $209,000 for this year, up from $197,000, and an average rate of 4.7 percent for a 30-year, fixed-rate loan. The rate remains historically low, but the days of an accommodative Federal Reserve interest-rate policy are ending and the rate could get close to 6 percent next year.

What’s needed is a ramp up in new-home starts to about 1.7 million a year, the historical average, from about 1.1 million now, Yun said. Until there’s more inventory, sales volume will remain low and prices will keep rising.

To get more starts, community banks—the traditional sources of credit for small builders—need to pick up their lending. Although there are lagging signs that lending might be poised to head up, uncertainty over banking regulations enacted after the financial crisis is contributing to the status quo.

For the long term, the picture is much brighter, because there is a lot of pent-up demand from young adults who can’t overcome income and financing hurdles to buy and increasing interest from international buyers who want to purchase in the United States. As the broader economic recovery strengthens, with the creation of more and better-paying jobs, the gap between the country’s growing population and flat-lining home sales will narrow.

For 2015, Yun is forecasting 5.2 million existing-home sales, 710,000 new-home sales, up from 510,000 this year, and a home-sale dollar-volume increase of 11 percent from the year before.

Looking further ahead, as the global population nears the 9 billion mark at the beginning of the next decade, destination cities including New York, San Francisco, Washington, Boston, Chicago, San Diego, Dallas, and Miami, among others, will see ever-increasing home values as global buyers stoke demand.

—Robert Freedman, REALTOR® Magazine
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Phil Mount

Phil Mount is an agent at Front Street Brokers in Boise, Idaho. Phil became a licensed REALTOR in August 2009 after a 25 year career as a technology marketing professional. In his first year as an a....

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