The National Association of Realtors has recently informed that single family homes are expected to have their best year of sales since 2006. The primary driving factors behind this are increased employment and an improving consumer confidence. While sales have a positive forecast, affordability and low levels of housing inventory look to be continued challenges for this year.
Chief Economist for NAR, Lawrence Yun, shared that Q1 of 2017 was the best sales pace for existing homes in the past ten years. He anticipates that the pace will continue through this year with 5.62 million sales which is the best since 2006 and an increase of 3.5% over last year.
However, first time buyers still have their challenges with limited housing and rising prices.
“We have been under the 50-year average of single-family housing starts for 10 years now,” Yun said. “Limited lots, labor shortages, tight construction lending and higher lumber costs are impeding the building industry’s ability to produce more single-family homes. There’s little doubt first-time buyer participation would improve and the homeownership rate would rise if there was simply more inventory,” he said.
Yun anticipates that new home starts will rise by 8.4% this year to 1.27 million. This is a step in the right direction yet still short by approximately 1.5 million that would be needed to make up for demand.
Jonathan Spader, Joint Center for Housing Studies senior research associate at Harvard University, joined Yun at the 2017 Realtors Legislative Meetings and Trade Expo to analyze the real estate market forecast for 2017. He said that the homeownership rate will stay between 61% and 65.1% as it faces challenges including an aging population and changes in family type.
“Stagnant household incomes, rising rental costs, student loan debt and limited supply have all contributed to slower purchasing activity,” Spader said. “When the homeownership rate stabilizes, there will be an increase in homeowner households. Young and minority households’ ability to reach the market will play a big role in how much the actual rate can rise in coming years.”
Yun anticipates that there will be two more rate hikes this year with an ending average of 4.3% at 2017’s close.
“There was a lot of uncertainty at the start of the year, but a very strong first quarter sets the stage for a modest sales increase compared to last year,” Yun said. “However, prices are still rising too fast in many areas and are outpacing incomes. That is why housing starts need to rise to alleviate supply shortages,” he said. “There will be more sales if there’s a meaningful bump in new and existing inventory.”