Here Is How Housing Will Help The Economy In 2016

Dated: November 17 2015

Views: 566

MarketWatch/Tim Rostan
House for sale in August 2015 in the North Center section of Chicago.

SAN DIEGO (MarketWatch) — The housing sector will be a positive contributor to the U.S. economy in 2016 , overcoming concerns about rising interest rates, tight mortgage credit and student-debt burdens that are holding back many buyers, according to analysts here at the National Association of Realtors annual convention.

“This was a good recovery year for housing, although not anywhere near the peak in terms of home sales,” said Lawrence Yun, the NAR’s chief economist. “Next year the recovery continues, but it will be at a slower pace.”

Yun said he expects as many as 5.5 million existing-home sales in 2016, up from an estimated 5.3 million this year. The median home price across the U.S. is expected to rise 5% next year after an increase of 6% in 2015. That should help push GDP to a 2.7% growth rate for the year, he predicted.

While home prices have recovered in many areas of the country to meet or exceed their peaks during the housing bubble, home sales still remain 25% below their top in 2005.

Cris Deritis, senior director of consumer economics for Moody’s Analytics, said there are three key areas for optimism about housing in the coming year: the labor market is coming back to near full employment, wage growth is finally picking up and there are millions of new households waiting to be formed that have still not done so thanks to the Great Recession.

“The key driver there is we have 4.5 million more 18- to 34-year olds living with their parents than at the start of the recession,” Deritis said. “With rents rising and wages growing — and the parents pushing — that should send many into the housing market.”

But there are headwinds for housing. Mortgage credit remains tight as lenders demand historically high credit scores from borrowers and the student-loan debt that many carry is delaying their ability to save for down payments and boost those credit scores to acceptable levels.

As a result, homeownership rates in the U.S. have fallen near the lowest level in 50 years. “And younger people are taking the biggest hit,” Yun said. The share of first-time home buyers has fallen to 32%, NAR data show, the lowest level since 1987.

Two other problems for younger home buyers: Home builders remain fixated on the luxury market, with very few housing starts being aimed at the entry-level market, and the supply of existing homes for sale in many areas is so small that first-time buyers have little chance of competing.

“That tight supply presents a big hurdle for many buyers,” said Tom Salomone, the NAR’s 2016 president.


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Mark Ross

For Mark Ross, founder of Ross NW Real Estate and professional real estate broker, real estate has always been the career of choice. During his 25+ years in the industry, Mark has gained experience in....

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