NAR’s Chief Economist Yun predicts housing to remain in recovery at moderate pace

“The housing market is in recovery,” said Dr. Lawrence Yun yesterday. “I see a continued recovery with increased sales.”

Yun, chief economist senior vice president of research for NAR, gave the keynote address during the Greater Lehigh Valley Realtors® Economic Outlook at Lehigh Carbon Community College. Yun said that while homeownership is at a 50-year low, Realtors® should not be alarmed. Right now, the younger households are less likely to buy homes, as the wealth gap between those 35 and younger and those 65 and older has grown substantially in the last 30 years. Thanks to college debt, and a current lack of higher-paying jobs, millennials are struggling to afford homeownership. “The American Dream of owning property is out of touch” right now for younger generations, he said. Eighty percent of millennials said they want to be eventually own homes, according to Yun, but they are currently hindered by financial restraints. However, rents continue to rise, and are at a seven-year high, continuing to limit young adults from affording to buy.

On the other hand, baby boomers are accumulating wealth, and 80 percent are homeowners, he said. However, the lack of inventory affects them as well. Those who want to sell are having a difficult time finding a new home that suits their needs, and are thus are hesitant to put their homes on the market.

While there is a large, pent-up demand for housing, there is also a lack of new housing starts, said Yun. Thanks to newer financial regulations following the great recession, there are fewer constructions loans available, Yun said, so housing starts have stalled. Additionally, skilled workers, like those who do construction, are harder to come by, he said. This is creating a bottleneck in the housing industry. He said that home sales are recovering, but at a much more moderate pace than in the past.

However, Yun said he does not believe we are in danger of entering a housing bubble. With inventory this low, prices cannot decline, and therefore, people cannot buy homes that they cannot ultimately afford, he said. He also pointed out that borrowers are healthier, and less are defaulting. However, he said commercial real estate prices are rising “very, very fast,” and the industry is something to be watched.

Ultimately, Yun predicts mortgage rates will rise from current historic lows, but not by too much. Yun suggested we will see them hit about 4.5 percent next year, up about 1 percent from the current average rate of 3.4 percent. He also predicts new home sales, along with increasing home sales will both see growth next year.