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Policy issues coming out of Washington rather than economic factors could have the most consequential impact on home sales over the next few years, NAR Chief Economist Lawrence Yun told thousands of REALTORS® at the Legislative Meetings & Trade Expo in Washington.
Yun predicts existing-home sales will reach 5.6 million units this year, up about 200,000 units from 2016, and new-home sales of 620,00 units, up from 560,000. Steady GDP growth of 2.2 percent, new jobs of 2.1 million, and relatively low inflation of 2.3 percent are behind the gains. “There are no signs of recession” on the horizon, he said.
Home sales would be higher but rapidly rising home prices, fueled by low inventories in markets around the country, are keeping sales constrained, he said. Home prices are expected to rise far ahead of wage gains, exacerbating a mismatch that’s plagued the market since the recovery began. He predicted price gains of 5 percent this year, about the same as last year.
Wall Street investors who swept into the housing markets after the downturn to snap up foreclosed homes and turn them into rentals are part of the reason so few homes are available for sale, he said.
The other reason is the slew of hurdles builders face in getting new homes on the market. These include shortages of land and construction labor and the difficulty builders face in getting construction loans.
With economic factors relatively stable, the biggest unknowns facing markets in the near term are likely to be the non-economic factors that could come out of Washington, he said. These include any changes to the tax code that could affect housing.
More immediate, though, is deregulation. The Trump administration is reviewing what changes to make to environmental rules and the Dodd-Frank banking reform law that was enacted after the housing crisis.
Yun said Dodd-Frank changes that reduce the regulatory burden on small banks could help ease the constraints builders face getting construction loans for projects. “That would be a positive from NAR’s viewpoint,” he said. So would responsible changes to environmental rules that make the permitting process more efficient for builders.
More of a problem for NAR would be changes to the secondary mortgage market companies Fannie Mae and Freddie Mac that would take the federal guarantee out of the conventional market. “That would be a negative,” he said.
Also appearing at the session were Mark Calabria, chief economist for Vice President Mike Pence, and Jonathan Spader, an analyst with the Harvard University Joint Center for Housing Studies.
Calabria said the Trump administration is planning to release its recommendations for deregulating financial services companies in June.