Lawrence Yun, chief economist of the National Association of Realtors®, said existing-home sales have shown a 20 percent cumulative increase over the past two years, while prices have gained 18 percent, but incomes have risen only 2 to 4 percent in the same timeframe.
“We’ve come off of record high housing affordability conditions in
the past year, and are now at a five-year low, but conditions are still
the fifth best in the past 40 years,” Yun said. “While the median-income
family in many areas will still be well positioned to buy a home in
2014, income is barely budging given growth in consumer prices.”
Yun said the other headwinds moving forward include limited inventory
conditions in many areas and mortgage lending standards that are still
unnecessarily stringent. “Although home sales have recovered over the
past two years, mortgage purchase applications have been flat for the
past four years, even with rising sales,” he said.
With higher mortgage interest rates, he expects refinancings to
collapse in 2014 to the lowest level in at least 15 years, and hopes
purchase applications will begin to rise. “This is an incentive for
banks to increase mortgage origination, especially considering the low
default rates in recent years. But even with cheap mortgages for the
past four years, all-cash buyers stayed high, accounting for over 30
percent of sales,” Yun noted.
Beyond bank motivation, Yun said Washington policies for mortgage
lending have been too restrictive. He cited rising fees for Fannie Mae
and Freddie Mac, higher Federal Housing Administration premiums, as well
as Dodd-Frank banking regulations, which have been strangling community
banks. In addition, Yun said banks are holding onto funds for potential
Department of Justice lawsuits, rather than making them available to
He said job creation, and hopefully a relaxation in stringent lending
standards, will offset higher mortgage interest rates. Existing-home
sales this year are forecast to rise 10 percent to nearly 5.13 million,
but should hold fairly even at about 5.12 million in 2014.
Limited supplies were the biggest factor in price performance in the
past year, with inventory bouncing around 13-year lows, and seriously
delinquent mortgages have been trending steadily down. The national
median existing-home price for all of 2013 will be up just over 11
percent, to about $197,000; then increase nearly 6 percent next year.
Yun expects the inventory shortages to be felt again next spring.
“Housing starts are the only way to alleviate inventory shortages,” he
said. “Housing starts need to rise 50 percent to meet underlying
Housing starts are forecast to hit 917,000 this year and reach 1.13
million in 2014, which is still well below the underlying demand of
about 1.5 million. New-home sales are likely to total 429,000 in 2013,
and grow to 508,000 next year.
Inflationary pressure may begin to build during the course of 2014,
with consumer prices projected to rise 2.7 percent, but Yun said
inflation could reach 4 to 6 percent in 2015. Mortgage interest rates
are expected to trend upward and reach 5.4 by the end of next year.
Yun projects growth in Gross Domestic Product to be 1.7 percent this
year and 2.5 percent in 2014. “If not for the housing recovery, we could
be on the verge of a recession,” Yun noted. “The rent component of
inflation is rising, so the only way to tame price growth is new home
Since the economic downturn, 8.8 million jobs were lost, but only 7
million have been regained. “We need another 6 to 8 million jobs to get
back to normal,” Yun said. The states with the fastest job growth are
North Dakota, Utah Idaho, Texas, Colorado, Minnesota, Georgia,
Washington, Arizona and New Jersey. The unemployment rate is projected
to decline to about 6.7 percent around the end of next year.
Source: The National Association of Realtors®,