Today I was able to sit in on a presentation given by the National Association of Realtors® chief economists Lawrence Yun. Lawrence has also been recognized as one of the top 10 economic forecasters and was able to give us some great national and local information about what is going on in the real estate market.
The Housing Market is Recovering and we will see Home Prices Increasing over the Next Five Years!!!
Expect a strong multi-year housing formation bursting out!!!
The presentation started with Lawrence explaining how the government shutdown effected the current real estate recovery. He made it clear that the shutdown put some "delays" on the market but that it did not hender it from making a strong recovery.
Here are some of the main points from the presentation:
- Over the last three months, pending home sales have dropped because housing affordability is increasing. Mortgage rates are increasing and home prices are increasing and this has made it more difficult for home buyers to obtain financing.
- Buyers have come back into the market and home inventory is low. Nationwide we are at a 13 year low in inventory
- New home inventory is at a 50 year low!!.......So Why Aren't Builders Building???
- Small builders may only build 10 houses a year but they have historically consisted of the largest portion of new home sales. These smaller builders have not been able to reenter the market because many of them are having trouble obtaining construction loans.
- Large builders are the majority of new homes sales in this market. Large builders go to Wall Street, issue bonds to raise money to buy lots and start building.
- The US population is increasing by about 3 million people each year. This means that builders should build about 1.5 million homes a year to keep up with the increasing population. This is not currently happening.
- The US will see less foreclosures next year just as we did this as the shadow inventory continues to fall.
- Charlotte, NC housing permits are still low but are better than the numbers seen in the rest of North Carolina and the US.
Interest Rates Have Been Below 6% for 5 years!!!
And they are not going back to 3.5%
Lawrence predicts that by this time next year interest rates will be around 5.5%
With mortgage rates so low, it seemed strange that the percentage of cash offers is at a really high mark. 33% of housing transactions took place with a cash offer. (50% of Florida's transactions were cash so this has skewed the numbers slightly) The economists believe that people are using more sophisticated ways to get cash...maybe even borrowing from family members. After several months of living in the house, they are getting a home equity loan to help repay those that gave them cash to purchase.
OPEN HOUSE FOOT TRAFFIC
Buyer traffic at open houses passed the seller traffic 24 months ago. The seller traffic at open houses has remained level but the increase buyers has led to the housing inventory shortage and in return is causing housing prices to rapidly rise in some areas.
Pheonix, AZ has seen an increase of 30% in housing prices over the last 12 months!!
Charlotte, NC is around a 11% increase over the last 12 months.
Phsycology plays a huge role in effecting the median price range of houses. People became too pesimistic about the housing recovery and the prices fell below market values. We are seeing large increases in some cities now that the market is correcting itself. Prices will continue to to increase next year because of the continued shortage that we expect to see in the market.
THE RENTAL MARKET
Rental popularity is rising because is is harder to get a mortgage. Student loans is making it hard for many first time home buyers to purchase. Home ownership has been flat since 2006. From 1980-2006 the US experienced a steady increase in home ownership. Lawrence used a visual in his presentation to show the difference in wealth between renters and home owners. The average renter has a net worth of $4,000 while the average home owner has a net worth closer to $225,000. (Many of these home owners have paid their houses down and a lot of their wealth is in the property) We will experience a widening of the wealth gap because the number of people renting are increasing and home equity is increaing for home owners.
Next year the economists are not predicting an increase in the number of real estate units sold bur are expecting a decent increase in housing prices.
Charlotte, NC job numbers are back to where they were during the peak and is continuing to increase. There is still needed improvement as the population has grown.