At the recent 2016 Realtors Conference and Expo in Orlando, Florida, National Association of Realtors (NAR) Chief Economist Lawrence Yun and Atlanta Federal Reserve President and CEO Dennis Lockhart discussed economic conditions they believe will result in a “net positive” for housing in 2017.
Among those conditions expected to drive those positives for housing next year are more millennials entering the housing market for the first time, increased household formation, and increased demand due to more job creation, according to NAR.
Speaking to a group of realtors and industry guests, Yun and Lockhart discussed both the positives and negatives of the housing sector in 2016.
“The gradually expanding economy, multiple years of steady job creation and mortgage rates under 4 percent all contributed to sizeable interest in buying a home this year,” Yun said. “However, it's evident that demand and sales slightly weakened over the summer as stubbornly low supply limited buyers' choices, accelerated price growth and hindered some consumers' belief that now is a good time to buy a home.”
Yun said he expects existing-home sales to finish 2016 at a pace of 5.36 million for the year, which would make 2016 the best year for existing-home sales since the bubble days of 2006 when they sold at an annual clip of 6.47 million. NAR is forecasting an increase of about 2 percent in existing-home sales for 2017 (up to approximately 5.46 million) and a larger increase of 4 percent in 2018 (to approximately 5.68 million). NAR expects the national median home price to increase by 4 percent for 2016 and 2017.
The ongoing shortage of available homes for sale is impacting affordability, Lockhart said. Factors contributing to tight inventory of homes for sale are land availability, construction labor shortages, and tight credit for homebuilders, Lockhart said. According to Yun, next year, as housing starts increase, tight inventory and affordability issues will slowly begin to abate, and that leading-edge millennials will finally begin to enter the market at an increased pace. According to the 2016 NAR Profile of Home Buyers and Sellers, the median first-time buyer age was 32; and there is a growing wave of potential buyers entering their 30s no longer facing the delays which have traditionally kept millennials from buying homes: post-recession shaky job prospects, repaying student debt, and marrying and having children at later ages than previous generations.
“NAR surveys from both current renters and recent buyers prove that there's an overwhelmingly strong desire among the younger generation to own a home of their own,” Yun said. “The housing market over the next couple of years should get a big lift in demand from these new buyers. The one caveat is it's essential that there's enough new and existing supply at entry-level prices for them to reach the market.”
Lockhart expects millennials to be the drivers of the housing market in the near term, saying, “The coming years of housing demand will be millennial-driven and will support the single-family sector.”
Yun said a two things needed to bump supply up to healthier levels are a large increase in new homes and in the number of homeowners selling. He hopes that the recent leveling off of multifamily construction, which has dominated the building landscape as of late, is a sign that builders will begin to focus on single-family housing. While Yun expects housing starts to increase to 1.22 million next year (5.3 percent), he said that is still less than the 1.5 million new homes that will be needed to both keep up with demand and make up for the recent lack of inventory. The forecast for new home sales this year is about 570,000, a number that is expected to increase in 2017 to approximately 620,000.