Each year, Realtors® attending the National Association of Realtors® (NAR) conference learn about up-to-the-minute real estate trends and analysis to help serve their clients with a high level of knowledge and professionalism. A highlight at this year’s conference in San Francisco was NAR Chief Economist and Senior VP of Research Dr. Lawrence Yun who presents his annual report and predictions for the year ahead. Here a few salient points from his presentation:
The U.S. needs to build an average of 1.5 million new homes a year just to keep up with growth in the number of new households. 2005 was the last year that the threshold of 1.5 million new homes was constructed. Since that time, but especially during the recession, new home starts have fallen far below that 1.5 million mark. Now in 2019, the U.S. is down 5 to 6 million homes, which is the main reason for such a shortage of homes across the country.
Existing home sales
In 2017 there were 5.5 million existing home sales nationwide, followed by 5.3 million in 2018. The decrease was likely due to lack of inventory available to purchase. Lawrence’s prediction for the sale numbers to be about 5.5 million in 2019 and 5.6 million in 2020.
Inventory peaked at 4 million homes nationally during the beginning of the recession in 2007. Over the last three years, inventory has hovered between 1.5 and 2 million homes available.
Average mortgage interest rates were at 8 percent in 2000. There was a steady decline in rates to a historic low of 3.35 percent in 2012. Mortgage rates started at 4.46 percent in January of 2019 and fell to 3.8 percent in November. Lawrence is predicting 3.8 percent average rate for 2020.
First-time home buyers
As the country was coming out of the recession, first-time buyers came out of the woodwork. In 2009 first-time home buyers accounted for 53 percent of home sales. As prices rose quickly, the percentage dropped to about 30 percent and has stayed there from 2012 to 2019.
Distressed property sales
Distressed property sales peaked in 2009 with 50 percent of transactions being lender mitigated sales such as foreclosures and short sales. As the recession came to an end in 2014, lender mitigated sales were down to 8 percent. Now at the end of 2019, lender mitigated sales have dropped to 2 percent. There will always be a few people that for some reason or circumstance are not able to make their payments.
Median price growth
As a nation, the median price growth in homes was 5.7 percent in 2017 and 4.9 percent in 2018. Dr. Yun is predicting 4.3 percent for 2019 and a slightly lower growth rate in 2020 at 3.6 percent. According to Dr. Yun, homeownership is still one of the best wealth creators in America. In the last boom, as prices rose, so did the level of mortgage debt. In the boom since 2012, wealth has been created at a much more rapid rate due to less mortgage debt and the absence of the subprime/greater than 100 percent financing.
Are we in a bubble?
The most common question Dr. Yun says he’s asked is, “Are we in another real estate bubble?” According to him, “Conditions today are very different than the last boom/bust cycle. In 2004 we had a huge oversupply of new homes. In 2019 we still have a huge undersupply of new homes. In fact, we haven’t been building enough new homes to keep up with demand in over a decade. During the last downturn, there was the subprime factor and the variable interest rate. Now there fewer variable rate mortgages and virtually no sub-prime mortgages.”
These trends and predictions provide a fascinating backdrop to conversations about our real estate market.
Remember, all real estate is local, right down to the street. National statistics are very general trends. Be sure to consult your local Realtor for the most up to date information for your neighborhood.
By Duane Duggan. Duane has been a Realtor for RE/MAX of Boulder in Colorado since 1982 and has facilitated over 2,500 transactions over his career, the vast majority from repeat and referred clients. He has been awarded two of the highest honors bestowed by RE/MAX International: The Lifetime Achievement Award and the Circle of Legends Award. Living the life of a Realtor and being immersed in real estate led to the inception of his book, Realtor for Life. For questions, e-mail DuaneDuggan@boulderco.com, call 303.441.5611 or visit boulderco.com.