Reprint from The TAR Scorecard November 2014, as reported by TAR CEO, Philip Tedesco
The housing market “is making a U-turn”. That was the key message from NAR Chief Economist Dr. Lawrence Yun at the recent NAR National Conference in New Orleans. If the momentum continues, Yun said market activity “could reach cyclical highs very soon” in areas such as home prices and closings.
At his extensive economic update, Dr. Yun said that REALTORS® have seen two years of “nice growth” in home prices, sales and listings because consumer confidence continues to improve.
“The nation’s economic recovery is dependent on the housing recovery. If the housing recovery does not continue, the economy will begin to wobble. Although the market moved a bit sideways the last couple of months, buyers are coming back again. Fortunately, we are making a U-turn,” Yun said.
If the momentum continues, Yun said market activity “could reach cyclical highs very soon” in areas such as prices and closings. Although optimistic, he warned there is no guarantee “that sentiment will bear out.”
Regarding fiscal policy, Yun expects Federal Reserve rates will rise in about April. Mortgage rates certainly will be higher then, perhaps up to 4.5%.
By 2016, mortgage rates could be 6%. Although higher rates can be bad news, “the big compensating factor” is credit. “If they (regulators and lenders) can open the credit box, especially for Millennials who are saying give me a mortgage, the housing recovery momentum can continue,” he said.
Going forward, existing home sales will dominate the market. He described the enthusiastic outlook buy new home builders as “pie-in-the-sky” over-confidence. Although their profit margins are increasing, their historic production levels are far, far below normal.
Their optimism is skewed by a flaw in the economic surveys that determine builder sentiment, Builders who went bankrupt during the recession no longer participate. By excluding their input, the outlook for new construction is, by default, more upbeat.
In 2015, Yun predicts the economy will add 2.5 million jobs nationally. That will help GDP return close to its historic average of 3% growth annually.
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