10 REALTOR® MARCH/APRIL 2015 REALTORMAG.REALTOR.ORG
A First-Time Buyer Comeback?
2015 got off to a snowy and sluggish start
for residential markets. While running
at a faster clip than at the same time 12
months earlier, January’s closing activity
clocked in markedly lower compared to
the final months of 2014. Sure, the severe
weather experienced by much of the
country had a hand in the tepid performance—an annual pace of just 4. 8 million
sales. But other factors, apart from the
season, could be restricting home sales.
First, buyers are not excited by their
choices. Inventories are low and falling.
The supply of homes fell in January for
the second straight month on a year-
over-year basis, after having risen for 16
straight months, and are far below what
the market needs. Larger inventories not
only help to motivate buyers, they also
keep prices from rising too quickly.
But the news is not all grim. Demand
for new construction is rising, and with
it the need for workers. Homebuilders,
who have been scrambling to find skilled
laborers, may find a larger available pool
as hard-hat workers leave the slowing oil
drilling industry in favor of construction,
which is experiencing wage hikes. As a result, we could see a 30 percent increase
in new-home sales this year.
Second, there could be a change in
lifestyle as young adult households—
millennials—settle in as renters. Does this
generation prefer not to be tied down?
It’s too early to tell. The home owner-
ship rate—now at 64 percent —is at its
lowest level in more than 20 years. This
phenomenon may have little to do with
lifestyle choices and more to do with eco-
nomic realities. After all, the number of
millennials—those in their 20s and early
30s—living with their parents is at sky-
high levels, and it’s doubtful that staying
with mom and dad is their idea of free-
dom. More likely, they’ve felt hampered
trying to find stable, good-paying jobs,
let alone obtain mortgage financing in
today’s overly strict environment.
But there are hopeful signs here as
well. Jobs and wages are steadily improving. The mortgage credit box is opening
up a bit. When you look at these trends
along with the improving prospects for
home construction amid a strengthening
economy and continuing low interest
rates, first-time buyers could be poised
for a comeback in 2015. Overall, we could
see a good year ahead. The formation of
more new households is something parents, as well as their young adult children,
can smile about.
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.
2014 data reflects final seasonal adjustments.
Number of existing homes on the market at the end of the month.
Derived from monthly REALTOR® Confidence Index.
Results for August are based on 3,360 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 previous issues.
Practitioners are seeing more activity from buyers as interest rates remain low and financing becomes easier to obtain, at least in some markets. But inventory remains low in many areas, and income growth lags behind home appreciation.