5 Things to Know about the Second Half Housing Market

By Ryan Dosen

 

Half of the year is in the books and we are seeing many promising signs for continued improvement in the real estate market. With the back nine still left to play, National Association of Realtors (NAR) Chief Economist Lawrence Yun recently released NAR’s second half forecast and discussed a few interesting things we all should know about the current and expected conditions of the economy and housing market. Here are the highlights….

 

1. Home Sales Hitting Pre-Recession Highs

As discussed in last week’s column, pending contracts to buy existing homes have hit a 9-year high, new home sales have hit a 7-year high, and housing permits to build new homes have hit an 8-year high. Existing-home sales also recently hit their highest mark since 2009, when the homebuyer ($8,000) tax credit had been in place. Though the credit is no longer in place, the economy has improved and the market is rebounding nicely. This return to pre-recession levels of activity is definitely a positive sign for the housing market.

 

2. GDP and Jobs Growth Expected, Despite Sluggish Wage Growth

Yun forecasts that GDP will grow by 2.5 to 3 percent in the second half, allowing for more job creation. He also says that a total of 2.5 million net new jobs are likely to be created this year. While expecting solid job growth in the second half, Yun warns that part-time jobs are too high and that incomes are rising at a “sluggish” 2 percent rate. However, he also forecasts that wages should rise by 3 percent next year.

 

3. Low Inventory and Housing Shortage Fuel Price Growth

Yun says that housing inventory remains low by historical standards in most markets. Some hot markets like Denver and Seattle are seeing unbelievably low inventories, with less than a one-month supply of homes being available on the market at a given time. Yun attributes the shortage in large part to the “cumulative impact of homebuilders not being in the market for well over five years.”

Normal new home construction numbers should come in around 1.5 million units annually. 2009 saw a production of only 550,000 new homes, and those numbers only climbed to 1.0 million by 2014. Yun sees a return to 1.5 million annual units possibly by 2017. Until we reach normalcy, he says that the “consequence is stronger than normal home price growth.” Price growth, however, could be tempered by the pesky slow rate of wage increases, as well as probable interest rate hikes.

 

4. Fed to Raise Rates, Probably in October

Yun forecasts that the Federal Reserve will be raising short-term interest rates soon. Many economists had predicted that September would see the first rate hike. Yun says that October is more likely. He says that “the Fed will also signal the continual raising of rates over the next two years.” As we have noted many times, it is very likely that we will see interest rates climbing later this year.

 

5. Sales and Price Growth Ahead

Yun concluded by saying that “all in all, existing and new home sales will be rising. Combined, there will be 5.8 million home sales in 2015, up 7 percent from last year.” He also says that home prices will be rising at a rate of 7 percent and that the industry will see business revenue rising by 14 percent in 2015. Yun sees further solid growth for the industry in 2016.

 

Sunny With a Chance of Clouds

The forecast is bright for the real estate market. For now. Housing numbers are back to pre-recession levels and housing production is headed back to a normal pace. However, any number of things could happen to slow the recovery. There is a great deal of uncertainty in Europe and China, and there is no telling how far or to what extent the ripples will be felt.

Interest rate hikes, which are all-but-certain to be coming soon, paired with price increases that outpace wage increases, could easily price many people out of homes and harm the market if they are not carefully managed. The powers that be have effectively managed the recovery to get the economy out of the proverbial ditch. Now they must continue to carefully manage things so that we don’t slip and wind up right back where we were just a few short years ago.

 

– Ryan Dosen manages The Wayne Megill Real Estate Team of Keller Williams – Brandywine Valley in West Chester, PA. Contact Ryan Dosen to inquire about buyer or seller representation or to learn more about a career in real estate by emailing ryan@waynemegillteam.com or calling 610-399-0338.

 

This article was published by 21st Century Media and the Daily Local News (West Chester, PA). To read this article on the the newspaper’s site, please visit the Daily Local News.

To view all of Ryan Dosen’s 21st Century Media real estate columns, visit http://www.dailylocal.com/search?text=dosen.