Improving housing market will benefit next president, economist says
August 10, 2012
Steamboat Springs — The chief economist for the National Association of Realtors told a Steamboat audience Thursday that whoever becomes the next president of the United States, whether it's President Barack Obama or President Mitt Romney, will be a lucky man, indeed.
The national economy and the real estate market will continue to improve in the next three years, Lawrence Yun told a group of 40 Realtors, who gathered for a breakfast meeting at The Ranch at Steamboat. Presumably, that will make the job of president of the United States easier during the next four years.
By 2014 or 2015, fewer homeowners will be upside down in their homes, home prices will have continued to rise, and homeowners' equity will have increased, making it easier to sell real estate, Nun said.
"Right now, 15 percent of homeowners are underwater, not 33 percent as CNN continues to report," Yun said. "CNN has it completely wrong."
Yun said it's true, 33 percent of mortgages across the country are underwater. But that figure has been misstated as the percentage of homeowners who are underwater. What some national news organizations are failing to take into account, he said, is the number of homeowners who do not have mortgages, and thus, the reported statistics are skewed.
The first six months of 2012 represent the best first half the national real estate market has seen in five years based on the steady rise of the number of pending contracts, Yun said.
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There is much stronger buyer interest relative to seller interest, a sign that inventory is being absorbed, he added. But simple demographics, including population growth and the less understood "household formation" measurement, suggest that housing demand is almost certain to rise, he added.
"America is one of the few advanced economies that still has respectable population growth," Yun said. "The United States adds 3 million people every year. That's 30 million in 10 years."
Of the annual population increase of 3 million, 1 million are attributable to immigration and 2 million are derived in the birth rate being higher than the death rate.
Population growth feeds into a measurement known as household formation, which feeds into the number of first-time homebuyers, Yun said.
In the midst of a more robust economy, he explained, annual population growth of 3 million would lead to the creation of 1 million new households.
The growth in the number of American households has been lagging since 2007 due in part to the number of college graduates who are choosing to move back into their parents' homes or are living with more roommates than they might have in the past. The decline in household creation, he said, has translated into fewer first-time homebuyers.
But that condition could be described as a big spring that has been compressed and is overdue to rebound, Yun said.
"Pent up demand has been pressing down on that spring for five years," he said. "Soon this recoiled spring will have to pop out."
There also is reason for concern in the housing market, Yun cautioned.
Although home sales are picking up on a national basis, Americans still are living with a market that has fallen 60 percent, Yun said.
He said a pending regulation that could establish significantly higher minimum down payments in order to obtain mortgages backed by the Federal Housing Administration as well as by Fannie Mae and Freddie Mac, could cause many first-time homebuyers to pull back. Accustomed to 3 percent down payments on those federally backed loans, homebuyers could have to save for more than a decade longer to be able to afford to buy, he said.
Low down payment loans were not the reason the housing bubble burst, Yun said; it was unrealistically relaxed loan-to-income ratios that allowed people to purchase homes they couldn't afford.
Further, talk of eliminating the federal mortgage interest exemption is potentially damaging to the housing market because it would lower the perceived value of homes and deter buyers, Yun said.
Yun, who gave a talk in Iowa on Wednesday and had a second engagement in Glenwood Springs on Thursday, took the time to study Routt County's housing market.
He observed that the average sales prices of homes here suggested that the second home market has begun to rebound. But he said that turnaround is driven more by investors who see the value of buying low and collecting rental revenues than it is by people who intend to occupy their second home.
To reach Tom Ross, call 970-871-4205 or email tross@SteamboatToday.com