There’s been widespread news that the market is healthy. Job growth is up, unemployment is down and the real estate market is thriving, for now. An undercurrent of concern, however, may be keeping consumer confidence low, and that’s related to fears that another recession is imminent. Is that apprehension warranted?
“We’re excited to bring you unique perspectives of the real estate market; where it’s been and where it’s going,” said John Smaby, immediate past president of NAR, kicking off the summit. “There’s a lot of brain power in this room. You’ll hear educated forecasts of tomorrow’s real estate market and hear from top economists on the top challenges and opportunities.”
While they all had varying opinions about the state of the market, and where we are headed, the biggest takeaway is that chances of another recession in the short-term are low, tallied at an average 29 percent chance by the economists.
“This time of year, I get the same question from our 1.4 million members: ‘What’s going to happen next year?’” said Lawrence Yun, PhD, NAR’s chief economist and senior vice president of Research. “I thought it would be good to assemble a group of economists to give their perspectives.”
Here’s what they had to say about today’s economy and real estate market:
“We are in a great economy,” said Yun, “and the job market data certainly reflects that. There is consistent job creation, leading to a super low unemployment rate of 3.6 percent in the U.S. The stock market is touching an all-time high, and homeowners have been accumulating wealth thanks to price appreciation.”
But there are segments of the population that are not participating in this wealth gain, said Yun.
“The younger buyer and African American homeownership rates are still struggling to gain traction,” said Yun. “We want to look into what could be the barriers or perhaps the housing conditions. We have more people, affordability conditions are better, yet home sales are actually lower, so something is not matching up with the current environment.”
Home values are increasing, but the growth is leveling out in certain price points, while others are a little livelier, reported multiple economists.
“We see a much higher increase at the low-end and it is far outstripping the wage increases at the entry level,” said Edward Pinto, resident fellow and director at the AEI Housing Center of the American Enterprise Institute.
For many places across the country, the home affordability gap is increasing because of this.
“The bad news is that house prices have been increasing much faster than household incomes,” said Kermit Baker, PhD, senior research fellow at the Joint Center for Housing Studies at Harvard University, who added that there is a lot of regional variation, and so metro areas along the Pacific Coast and Northeast corridor are where the home price-to-income ratio is not really sustainable.
Lack of inventory continues to be an obstacle, especially at the entry-level, affordable price points. Danushka Nanayakkara-Skillington, assistant vice president of Forecasting & Analysis for the National Association of Home Builders (NAHB), said one of the biggest issues is a lack of skilled labor in construction.
“There are 338,000 jobs open in construction, but we’re finding it really difficult to fill these jobs,” she said. “Many left the labor force for good after the Great Recession, and not many are now going into construction or to trade schools. The immigration platform has also choked off supply.”
According to NAR, there are markets, however, that are expected to outperform the challenged areas over the long term because of their housing affordability and local economic expansion:
- Charleston, S.C.
- Charlotte, N.C.
- Colorado Springs, Colo.
- Columbus, Ohio
- Dallas-Fort Worth, Texas
- Fort Collins, Colo.
- Las Vegas, Nev.
- Ogden, Utah
- Raleigh-Durham-Chapel Hill, N.C.
- Tampa-St. Petersburg, Fla.
“Potential buyers in these 10 markets will find conditions especially favorable to purchase a home going into the next decade,” said NAR President Vince Malta, broker at Malta & Co., Inc., in San Francisco, Calif. “The dream of owning a home appears even more attainable for those who move to or are currently living in these markets.”
According to Yun, economists agreed that these top 10 markets shared the following strengths:
- Domestic migration into the area
- Housing affordability for new residents
- Consistent job growth outperforming the national average
- Age structure of the population
- Attractiveness for retirees
- Home price appreciation
Moving forward, what can we expect of the market?
“We expect mortgage rates to tick up slightly, finishing up between 3.8 and 3.9 percent,” said Danielle Hale, chief economist at realtor.com®. “We expect median home prices to move up slightly, which is surprising given the limited inventory in the market. We expect slight weakening in home sales, similar to what we saw in 2019, driven more by lack of supply than lack of demand.”
Hale also predicts millennials will make up half of all purchase mortgages in 2020, and that while there will be new opportunities for buyers from an increase in new construction, inventory levels will remain challenging depending on the price point. In higher price points, she said, there will be more availability.
“My opinion is that rates are going to stay on hold at least for the next year,” said James Chessen, PhD, executive vice president and chief economist at the American Bankers Association, who believes there are five drivers of change: consumer health, which is strong; business sentiment, which is weak; trade—currently uncertain; global GDP, on slowdown; and fed rates, on hold.
“We’re expecting a considerably weaker U.S. economy in the next year, and that’s going to really be reflected at the start of 2020,” said Mike Fratantoni, PhD, chief economist and senior vice president of Research & Industry Technology at the Mortgage Bankers Association (MBA). “But it’s going to be something much milder. Think 2001—very slow growth, enough where the unemployment rate might come up a bit. We expect rising home sales, rising originations and some additional supply coming onto the market.”
Yun agreed, stating that if we did go into a recession, “it would be a much shallower recession.”
The following predictions are averages based on the responses of all participating economists:
- Mortgage rates will rise incrementally, possibly hitting 4 percent in 2021—still favorable according to historical conditions
- 60,000 more housing starts in 2021
- Slower price appreciation that is more manageable and more closely in line with income growth
- Rents expected to rise a little faster than home prices
Overall, predictions for the future were relatively optimistic, with concerns over a recession low—a one in three chance.
For more information, please visit www.nar.realtor.