Growth in home sales and prices is contributing to a broader improvement in the overall economy, aided in part by current homeownership tax treatment, according to presentations at a residential real estate forum during the recent Realtors® Midyear Legislative Meetings & Trade Expo.
Lawrence Yun, NAR chief economist, said a multiyear housing recovery is likely. “Steady job creation and household formation have been helping to unleash a pent-up demand in the housing market,” he said. “Lagging housing starts and a continuing housing shortage mean home prices are primed to rise further, by 13 percent cumulatively in 2013 and 2014, which will add more than $2 trillion to household wealth over this period.”
Existing-home sales continue to improve, although Yun said inventory constraints are preventing stronger growth. After four years of relatively flat activity from 2008 through 2011, existing home sales rose 9.4 percent to almost 4.3 million in 2012 and are forecast to increase to nearly 5.0 million this year; he projects 5.3 million sales for 2014 and 5.7 million in 2015.
Investment home sales jumped to elevated levels in 2011 and 2012, and are holding up this year, while vacation home sales slowly recovered in the past two years. “Growth in household wealth will help vacation home purchases moving forward,” Yun said.
Home price growth is likely to moderate with more new home construction. “Double digit price gains are within reach in 2013 because inventory is bouncing near 13-year lows, but some relief to inventory will occur later in the year,” Yun said. After rising 6.4 percent in 2012, the median existing-home price should increase about 8 percent this year and 5 percent in 2014.
Yun calculates that 51 percent of renters are financially qualified to purchase a home, up from 24 percent in 2005 and 33 percent in 2000, although their credit scores are unknown and not factored. “Just looking at the financial qualifications, this means there about 8 million more renters with the income necessary to buy a home now than in 2000, but they are choosing not to, or are unable to become a home owner,” Yun said.
With the financial industry enjoying high profits, Yun hopes it may be ready to dial down the credit stringency. If the average credit scores of approved loans return to normal, about 720 for conventional loans and 660 for FHA loans, he projects home sale could be 15 to 20 percent higher. During the past four years, the average credit score of approved conventional loans has been in the range of 760 to 770.
Mortgage interest rates are expected to rise gradually this year, with the 30-year fixed rate reaching 4.0 percent in the fourth quarter and averaging 4.6 percent in 2014. Housing starts, which remain below the long-term average of 1.5 million per year, are seen at 1.1 million in 2013, up from only 780,000 last year, and are projected to reach nearly 1.4 million in 2014.
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