For the foreseeable future, the housing market will be plagued by scarce supply, according to presenters at the 2018 REALTORS® Legislative Meetings & Trade Expo, held recently in Washington, D.C.
With the economy and employment encouraging growth, home sales will be subdued, though still on an uphill track, according to National Association of REALTORS® (NAR) Chief Economist Lawrence Yun, who discussed the market during the Residential Economic Issues and Trends Forum. A forecast by Yun projects 5.6 million sales in 2018—a 1.8 percent increase—and another 5.7 million in 2019. Home sales were up 1.1 percent in 2017 and 3.8 percent in 2016, according to NAR.
“Overall fundamentals remain solid, driven by a growing economy and steady job creation, which will sustain home sales in 2018 slightly above last year’s pace,” Yun said. “The worsening housing shortage means home prices are primed to rise further this year, too, hindering affordability conditions for homebuyers in markets across the country.”
Affordability is at its lowest in six years, according to the NAR Housing Affordability Index, and is expected to worsen. The disparity between earnings and home prices is severe: incomes increased 15 percent from 2011 to 2017, while home prices rose 48 percent. Affordability will be further tightened by increasing mortgage rates, which Yun expects will rise to 4.6 percent by year-end.
“Challenging affordability conditions have prevented a meaningful rise in the homeownership rate after having fallen to a 50-year low a few years ago,” said Yun. “To increase homeownership, more home construction is needed, which could be boosted by delivering regulatory relief to community banks, removing the lumber tariff, re-examining stringent zoning laws and training more workers for the construction industry.”
According to the forecast, ground-breaking is projected to reach 1.3 million starts in 2018, and 1.4 million starts in 2019—hardly an inroad.
The biggest cohort of homebuyers—millennials—are particularly struggling, with homes in their price point all but swallowed up, said Danielle Hale, chief economist at realtor.com®, who joined Yun. According to data from realtor.com®, there are 250,000 less properties in the starter tier (priced under $200,000) today than there were in 2015.
There is a brighter horizon, however.
“We are starting to see new listings grow in recent months,” Hale said. “The inventory shortage isn’t over—it took us years to get into an inventory rut, so it’s going to take us years to get out of it—but we do see signs of a turnaround.”
Hale and Yun were also joined by Jessica Lautz, director of Demographics and Behavioral Insights at NAR. According to Lautz, African American and Hispanic/Latino individuals, as well as those with college debt, are more challenged than others when it comes to homeownership.
“The homeownership rate amongst some ethnic groups hasn’t rebounded since the recession, and the ongoing affordability crisis has hampered potential buyers under 35, especially those with student debt, from accessing mortgage credit and making home purchases,” Lautz said.
For more information, please visit www.nar.realtor.