16 REALTOR® JULY/AUGUST 2014 REALTORMAG.REALTOR.ORG
The Long View on Recovery
No industry is more cyclical than the housing sector. Changes in job growth and mortgage rates can
have a big impact on whether home sales
rise or fall. Today, after two years of solid
growth, home sales appear to be hitting
a soft spot. But that doesn’t necessarily
mean the recovery is over.
Compared with previous cycles,
hitting a soft spot only two years into
a recovery is unusual. That’s because
the country’s steady population growth
typically boosts demand for home sales
after a downturn. We saw this in the three
housing recoveries since 1970. These
recoveries were multiyear phenomena of
seven, five, and 14 years (the boom).
This time, the expansion seems to be
sputtering after only two years. Why? It
doesn’t appear to be a lack of demand.
We’ve seen a build-up of potential buyers
from the creation of 2. 4 million jobs over
the past 12 months, as well as continuing
low interest rates ( 4. 2 percent as of early
summer), and the pent-up demand from
young adults living at home longer or
doubling up with friends.
The di;erence between this and
previous recoveries is on the supply side.
There simply isn’t enough inventory to
keep the market growing. Just to keep
pace with the growing U.S. population,
we would need to see about 1. 5 million
housing starts a year, but since the downturn, we’ve seen the construction of new
homes at levels well below half that.
Fortunately, we’re starting to see more
homes being listed for sale. March and
April inventory levels were higher this
year compared with last year, and home-builders are increasing their activity.
To be sure, the a;ordability side
continues to face pressure. Home prices
have been rising throughout the recovery, and credit standards remain tight.
But there’s good news on both fronts. As
more homes come on the market, the
pressure on prices should moderate, and
we expect future price gains to be in line
with income growth. And we see signs
lenders could dial down credit standards
to more normal levels, in part because
of the strong performance of mortgages
originated in the last few years.
Therefore, all in all, a multiyear housing market recovery is still in the works
if we discount the modest slowdown for
Lawrence Yun is
NAR chief economist.
Measures housing contract activity.
An index of 100 is equal to the level of
activity during 2001, the benchmark year.
Seasonally adjusted annual rate, which is
the actual rate of sales for the month, multiplied
by 12 and adjusted for seasonal sales di;erences.
Number of existing homes on the market at the end of the month.
Derived from monthly REALTOR® Confidence Index. Results for
May are based on 2,805 responses to 6,000 surveys sent to
large and small real estate o;ces. The survey asks practitioners
to indicate whether conditions are strong (100 points),
moderate (50), or weak (0). Some data may be revised from
Inventory constraints, rising prices, and still-tight financing have been keeping
home sales down. Mortgage rates remain low but are poised to rise, which would
dampen a;ordability and therefore demand. Even so, both closed sales and
contract signings show signs of a turnaround after months of steady declines.