Following the housing market’s best year since the recession, existing-home sales are expected to increase in 2016 at a moderate pace; although affordability pressures from inventory shortages and rising mortgage rates could slow the potential for even stronger sales momentum, according to an economic forecast forum at the 2015 Realtors Conference & Expo.
Lawrence Yun, chief economist of the National Association of Realtors, presented his 2016 economic and housing forecast and was joined onstage by Cris deRitis, senior director of credit analytics at Moody’s Analytics, who also shared his insights on the housing market and U.S. economy, and Jonathan Corr, president and CEO at Ellie Mae, who discussed issues impacting the mortgage industry and how real estate professionals can adjust to the upcoming wave of new millennial buyers.
According to Yun, the pent-up demand for buying in recent years finally broke out in a meaningful way in 2015, fueled by sustained job growth in many parts of the country and rising home values giving more homeowners the incentive to sell – a trend that he expects to continue next year.
“Sales activity in 2016 will once again be primarily driven by the ongoing release of more pent-up sellers finally realizing their equity gains and using it towards the down payment on their next home,” Yun said.
With demand expected to remain stable through the final two months of the year, Yun forecasts home sales to finish 2015 at a pace of 5.30 million and then expand 3 percent to around 5.45 million in 2016.
deRitis, who said he also expects ongoing affordability pressures in some areas as builders slowly respond to current housing shortages, said there’s still an above-average share of young adults living with their parents. He predicted a burst of activity in new construction and home sales coming to fruition in upcoming years, backed by a labor market at full employment, and pent-up demand from delayed household formation and rising rents will encourage more renters to consider buying.
A portion of Yun’s presentation focused on the difficulty facing first-time buyers, whose participation in the market was reported by NAR earlier this month and fell to its lowest share in nearly 30 years. Surprised by the underperforming percent share, he highlighted a few of the reasons behind their hardships, including a meager amount of affordable inventory, competition from vacation buyers and investors buying similarly priced homes and repaying student loan debt.
“Even among recently successful first-time buyers, 41 percent have student debt and the typical amount is $25,000. Repaying this debt amidst flat wage growth and sharp rent increases only makes it more difficult to come up with the cash needed for a down payment,” Yun said. “Their emergence back into the market will be a gradual one, but our data does show that young adults view homeownership as a good financial investment and part of their personal American dream.”
Yun anticipates the homeownership rate declining slightly further as the number of new renter households exceeds the share of new homebuyers – as it has since 2008.
“Millennials outnumber baby boomers by almost 10 percent, and they’re collectively just entering their homebuying years, with marriage and children on the horizon,” Corr added. “The good news is that most surveys are finding that millennials still want to engage directly with mortgage loan professionals and Realtors at key times in the buying process. Going forward, both will need to adjust accordingly by further adopting digital processes that make the buying experience easy and accessible for this group of engaged buyers.”