Positive underlying economic factors are helping relieve a pent-up housing demand, according to a presentation at the NATIONAL ASSOCIATION OF REALTORS® Midyear Legislative Meeting in Washington, D.C. this week.

“Historically high housing affordability conditions, ongoing job creation, a solid stock market recovery, rising rents, a larger pool of qualified renters, a pent-up demand, and improving confidence are drawing buyers to the market,” said NAR Chief Economist Lawrence Yun.

“Smart money, largely from investors responding to low home prices and rising rents, is chasing real estate, and we could see a potential surge once the broad perception of home ownership changes to that of an appreciating asset,” Yun said. “We just finished the strongest first quarter for home sales in five years, pending contracts are pointing to a strong second quarter, and the favorable conditions are helping the economy recover from an unusual slowdown in household formation in recent years with more young people now leaving their parents’ homes.”

Despite a minor gain in total home sales last year, owner-occupied sales fell. “A recovery in investment- and vacation-home sales and a high proportion of all-cash deals are hiding the current dysfunctional mortgage market,” Yun said. “Tight mortgage credit is holding back a stronger recovery. Banks are hoarding cash, possibly from regulatory uncertainties and lawsuits.” 

Home sales had been basically flat from 2008 through 2011. Yun forecasts 4.6 to 4.7 million existing-home sales in 2012, up strongly from 4.26 million last year, and additional improvement in 2013 with sales rising to the range of 4.7 to 4.8 million.

Mortgage interest rates are projected to rise gradually and then average 4.9% in 2013 — still historically favorable. “The pressure of rising rents on consumer inflation could force the Federal Reserve to raise interest rates in 2014, which might be good for home sales. Refinancing would fall and bank staff would be able to focus more on mortgage origination for home purchases,” Yun said.

A sustained decline in housing inventory — both for listed homes and “shadow inventory” of those with seriously delinquent mortgages — is the biggest factor affecting home prices, with broadly balanced conditions developing in much of the country. Yun said the median existing-home price is likely to improve modestly this year, rising just over 1%, with a gain of about 3% forecast for 2013.

Yun’s forecast assumes no adverse Washington policy or tax changes affecting home ownership. He adds there would be significant economic fallout if there is no new budget compromise by the end of the year.

Raven Molloy, Senior Economist at the Federal Reserve Board of Governors in Washington, D.C., offered her personal assessment on one residential trend.  “Internal migration in the United States is at a 30-year low, and has been declining since the 1980s,” she said. “The widespread nature of the decrease suggests that the drop in mobility is not related to demographics, income, employment, labor-force participation, or home ownership.”

Most short-distance moves are housing related, such as needing a larger home, while most long-distance moves are job related. Younger households move more frequently.

Her research shows the downtrend in mobility has been a fairly steady trend over time, with no sharp drops coinciding with the housing market downturn or economic recession. Although renters move much more frequently than home owners, the aging of the population may be a factor in the general slowdown.

Molloy notes that migration out of states with many underwater home owners has not fallen more than in other states. However, other research shows that local moves are lower for underwater home owners.
Migration within the U.S. remains higher than it is within most other developed countries.

Source: NAR