The real estate market was “amazing” last year, but according to Lawrence Yun, chief economist for the National Association of Realtors, it is showing signs of a “topping out” due to low inventory levels.
Yun spoke on Thursday during the NAR Forum on Economic Issues and Trends in Housing on the penultimate day of the trading group’s mid-year conference, the Realtors Legislative Meetings, which was attended by around 15,000 participants.
“What an amazing year for real estate,” said Yun, noting that despite the challenges of the pandemic, the economy is “very, very close to getting back to normal.”
“Vaccination is making great strides,” he said. “Overall, the economy is returning. The real estate market was a star of the bright economy. “
After a year-on-year decline of 9 percent in the second quarter of 2020, the annualized gross domestic product (GDP) in the first quarter of 2021 was 99 percent of its pre-pandemic high, according to Yun.
At the same time, personal income rose by 15.6 percent year-on-year in the first quarter and the savings rate by 158 percent. The savings rate in the second quarter of 2020 rose by a whopping 302 percent compared to the previous year.
“Believe it or not, the economy is essentially back to normal,” Yun said. “In fact, GDP will be reached soon [an] All time high for the simple fact that personal income … is significantly higher because of the stimulus measure. People have saved their economic stimulus money and will allow this expenditure to flow back into the economy. The economy will easily surpass its previous high [a] Question of the days. “
Yun also anticipates some “revenge spending” on travel and dining by people who want to both go out and get the economy going. Yun predicted that GDP would rise 4.5 percent in 2021 after falling 3.5 percent last year.
But while the economy is back, 95 percent of jobs are at their pre-pandemic peak and the country needs 8 million more jobs to catch up, according to Yun. He estimates the US will create 4 million jobs this year after losing 9 million last year.
“Jobs are taking a little longer to recover, but at least it’s moving in the right direction,” he said. “The weekly wage income in production, construction and logging is currently growing strongly. We need more wood. They’re paying about 7 percent more than last year, so hopefully the bottlenecks we encounter on some construction can recur soon as companies in these industries offer significantly higher wage growth compared to the other sectors. “
Yun also emphasized that vacancies are at a record high. The reasons this will likely be figured out by academics over the next several years, he said, but some possible reasons include lack of childcare due to continued school closings, persistent fears of coronavirus infection, and improved unemployment benefits that keep people from getting back to work.
Others have also found that job vacancies are concentrated in the food service sector, and many of those employees have moved to other industries or found higher-paying, less risky jobs on Amazon.
On Wednesday, the Bureau of Labor statistics announced that the consumer price index, which measures the change in prices paid by consumers for goods and services, rose 4.2 percent year over year in April. This is the biggest increase since September 2008.
This is “worrying” because if inflation stays high, mortgage rates can rise, according to Yun. He expects inflation to rise 2.7 percent this year and mortgage rates to rise by an average of 3.2 percent, up from 3 percent in the previous year, but after 3.9 percent in 2019.
At the same time, he predicts that existing home sales will rise 10 percent, even more than last year, when sales were fueled by those who could work from home during the pandemic. Still, there are signs that the real estate market is “going up,” meaning sales activity is still 5 or 10 percent above pre-pandemic levels but no longer 20 or 25 percent above, Yun said.
Meanwhile, he expects new home sales to remain high, rising 20 percent this year.
“If we look at the house builders, there is no loss of momentum,” said Yun. “Whatever they build, even if they include the price escalation clause to account for higher lumber prices, buyers still want to buy.”
Existing home sales are not rounding off because buyers are stepping down, but rather because of low inventory levels and multi-offer situations, according to Yun.
The lowest inventory shortages are most common in the lowest price ranges for starter homes, while the supply of home rentals is growing slightly by more than $ 1 million.
At the same time, sales of million dollar homes have increased dramatically.
Home builders have underproduced homes since the Great Recession began in 2007, but single-family home construction projects are starting to surge, according to Yun.
“The cumulative effect of 14 years of underproduction is that we just don’t have enough houses to sell,” Yun said. “[The government should consider] Opportunity zones, tax credits, and residential infrastructure spending might consider tax breaks for investor sales. Whatever it is, we need to bring in more inventory because you can see that we are not going to fix this housing shortage in an easy one year period. “
By the end of the year, however, he forecast “fewer multiple offers, fewer hasty decisions, less frenzy”.
Why? First, the good news: more inventory. “The house is being built,” he said. “It will take a few months for it to actually show up in inventory as it will take time to finish the house.”
More people will also give up on mortgage forbearance and choose to sell their home, which will add to inventory, he said. Vaccinations will also increase home sales by people who were previously afraid of letting strangers into their home, he added.
Now the bad news: “Higher house prices, higher mortgage rates are just crowding out the homebuyers who are on the sidelines,” he said. “We don’t want this to happen, but it is happening.
“So a combination of more supply and less demand means less frenzied activity over the course of the year.” He predicted that bidding wars would no longer prevail by 2022.
Email Andrea V. Brambila.
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