During an economic forecast forum at the 2016 REALTORS® Legislative and Expo, economist Lawrence Yun spoke at length about the immediate future of the housing market. Senator Elizabeth Warren joined him during his presentation. The two spoke about the different factors affecting home sales.
First Quarter Growth and 2016 Forecast
Yun noted that existing-home sales in the first quarter of this year were slightly higher than last year, despite an uneven performance. A combination of a three-year low in mortgage rates and several areas experiencing excellent job growth has kept demand high.
Because the job growth in many metro areas is expected to continue and mortgage rates are projected to hold steady, Yun believes existing home sales in 2016 will be around 5.4 million units. This would be a growth of between 4 and 5 percent over last year’s numbers. It would also represent the highest number of existing home sales since 2006.
Other Factors in the Market
Yun said that even though existing home sales are experiencing the best growth in over a decade, first-time homebuyers continue to be absent from the marketplace. This is despite conditions that make this one of the best times for young people to be entering the market. The low mortgage rates, and good job growth are not attracting first-time homebuyers. Senator Warren spoke at length about the effect that student loan debt is having on young people’s rates of homeownership.
Warren mentioned that the inability of students to refinance their student loans at the same rate as the historically low mortgage rates keeps many from buying a house. She also cited stagnant wage growth as a reason so few first-time homebuyers were participating in the market.
Homebuyer traffic remains strong even though in many regions there is a shortage of available houses for sale. This lack of inventory is responsible for the increase in home prices, which will hopefully stimulate more people into listing their homes. Yun remarked that if homebuilders ramped up production it would allow more homeowners to trade up to a new home, listing their old homes for sale, which would increase the housing inventory. He also said that people who buy homes now are the luckiest in a generation.
The Economy in General
The absence of first time homebuyers is the missing piece of a complete housing market recovery. However, even though job growth has been solid, overall economic growth has been unimpressive. Yun felt that without the housing sector’s boost to GDP, the economy might have slid into recession. Even though economic conditions are far from perfect, Yun believes that job growth, housing demand, and moderate GDP growth will lead to slow and steady growth of the economy overall, and result in steady gains for the housing industry.
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