Policy Issues, Inventory Continue Impact on Real Estate Market
Lawrence Yun, NAR’s chief economist, predicted that policy issues are likely to have a significant impact on the real estate market in the short term. Yun made his remarks at the REALTOR® mid-year meeting in Washington DC, attended by real estate professionals from around the country.
Yun noted that annual real estate sales have gradually increased each year since 2010, except for a slight decline in 2014 due to a rapid rise in interest rates. The same rate hike occurred in the fall of 2016, but first quarter sales in 2017 exceeded expectations, due to both buyer and seller optimism.
Yun warned however, that inventory remains extremely low in many markets, fueling home price increases. These price increases have been 41% higher than wage growth in the last five years. He cautioned that builders must re-enter the market and produce more homes in order to meet growing consumer demand. Time on market has gone from 47 days to 34 days in one year. More existing home listings won’t solve the problem alone, because those sellers will want to buy rather than rent.
Builders need to address the four L‘s in order to bring more homes to market. Those continuing obstacles are: shortage of Lots, shortage of Labor, construction Loan availability, and cost of Lumber.
Joining Yun in commenting on the market was Jonathan Spader of Harvard’s Joint Center for Housing Studies. Mr. Spader addressed the issue of why the national home ownership rate has declined the past few years despite a strengthening housing market.
He attributed the rate decline to two key trends. First, an increase in foreclosures affected the decline in homeownership for middle to older age Americans. Second, a delay in entering home ownership by younger people, caused by several factors, including tight credit, stagnant income, rising rents, and student debt.
When asked how cities such as Seattle could create new inventory and slow escalating prices, Mr. Spader replied that only those cities which have readily available land and less restrictive growth policies are successful in moderating home price increases.