Several speakers at the 2018 Realtors Legislative Meetings and Trade Expo stated that they are forecasting a slight increase in home sales for 2018, but that growth won't come without some obstacles.
Despite a strengthening economy, wage growth and improving job market, issues like low supply and affordability may threaten the rate of increase for home sales in 2018, according to the speakers.
After accelerating 3.8% in 2016, existing home sales rose only 1.1% to 5.5 million in 2017 and are forecast to finish at a 1.8% increase of 5.6 million in 2018, according to National Association of Realtors Chief Economist Lawrence Yun. He also projected 5.7 million sales for 2019.
“Overall fundamentals remain solid, driven by a growing economy and steady job creation, which will sustain home sales in 2018 slightly above last year’s pace,” Yun said. “The worsening housing shortage means home prices are primed to rise further this year too, hindering affordability conditions for homebuyers in markets across the country.”
The country is experiencing the lowest inventory levels in a generation. Unsold inventory is at a 3.6-month supply at the current sales pace, a decrease from 3.8 months in 2017.
For the past five years, inventory has trended down. The total housing inventory at the end of March was 1.67 million existing homes available for sale, which is 7.2 % lower than 1.80 million a year ago.
Fewer homes available on the market make them more expensive, which directly makes affordability harder for consumers. This prevents sales from increasing and could also likely result in contract activity remaining stagnant, according to Yun.
“To increase homeownership, more home construction is needed, which could be boosted by delivering regulatory relief to community banks, removing the lumber tariff, re-examining stringent zoning laws and training more workers for the construction industry,” said Yun.
While jobs have become more available, income intake may not match the needs of prospective home buyers.
Home price growth is up 48% from 2011 to 2017 and likely to rise an additional 4% in 2018. Income growth is falling far behind with only a 15% increase during the same timeframe.
Yun anticipates rates will rise to 4.6% in 2018 and 5% in 2018, putting affordability at a six-year low, according to NAR’s Housing Affordability Index. This will likely continue to fall in coming months.
A lack of resources is a major factor in the slowing increase of sales, but challenges like student loan debt as well as race indicate the markets struggles.
NAR’s director of demographics Jessica Lauts, presented findings that suggest the affordability crisis has specifically impacted certain demographics like African American’s, Latino buyers and those with student debt, more than other segments of home buyers.
“The homeownership rate amongst some ethnic groups hasn’t rebounded since the recession, and the ongoing affordability crisis has hampered potential buyers under 35, especially those with student debt, from accessing mortgage credit and making home purchases,” said Lautz.
Millennials and minorities are struggling to compete in a market that may not be geared towards their financial needs.
Millennials paying off their student loans have risen dramatically and is a massive barrier to homeownership for those paying their debt off by a median of seven years, according to Lautz.
Home sales are experiencing many challenges but there is still room for hope.
Chief economist at Realtor.com Danielle Hale supported Yun’s findings on the markets challenges but believes it could change.
“There is reason for optimism ahead though. We are starting to see new listings grow in recent months; the inventory shortage isn’t over,” Hale said. “It took us years to get into an inventory rut, so it’s going to take us years to get out of it, but we do see signs of a turnaround.”