The Economic Prognosis

The nation’s top housing economist takes a look at Washington’s economy and how real estate brokers can leverage the information to their advantage.

The national economy is rebounding, unemployment numbers are down, companies are hiring, and overall outlooks seem to be pointing to a better year in 2015 than the previous few. And while Washington as a whole was somewhat insulated from the full negative impacts of the recession and housing market challenges, the year ahead could find agents and brokers busier than ever.

"The state of Washington is performing better than the rest of the country in terms of job creation,"

…says Lawrence Yun, Ph.D., chief economist and senior vice president of research at the National Association of REALTORS®. Yun, who is forecasting a 7 percent increase in existing home sales for 2015, says Washington could fare even better than that. "The Seattle area in particular is doing much better than the rest of the country," says Yun, "and better than the national average."

But what about the 4.9 percent drop in sales (to a seasonally adjusted annual rate of 4.82 million homes sold) that NAR reported in January? Does this foreshadow another challenging year for agents and brokers? Yun doesn’t think so. "We did see a minor slowdown in January on a national level," he says, "but I think that was just a very temporary speed bump. Realtor.com, for example, is seeing a strong growth in consumers searching its site for homes and agents are noticing increased foot traffic."

Combined, those two elements point to high levels of pent-up demand that are being driven by a stronger national economy, says Yun, who sees the improving job market as one of the most important indicators for the market. "Overall, the conditions should be very good for both home buying and selling this year."

Weighing Out the Highs and Lows

Despite a forecasted higher pace of sales over the next 1-2 years, headwinds do remain that could hold back the housing market from reaching its full potential. Citing NAR’s monthly REALTORS® Confidence Index, which has decreased this year while consumer confidence has risen, Yun says REALTORS® are generally optimistic, but certain factors such as inventory shortages in parts of the country and tight lending standards may be playing a role in their recent dip in confidence.

"Multi-family housing starts have rebounded back to normal since the downturn mostly due to the strong demand for renting," says Yun, in NAR’s Home Sales Expected to Improve in 2015, but some headwinds still remain.

"On the other hand, single-family housing starts are still lagging as smaller homebuilders continue to face difficulty obtaining construction loans, and some have even gone bankrupt. Single-family construction still needs to increase to alleviate supply shortages and keep up with the pent-up demand."

According to NAR, housing starts hit 1 million in 2014 and are expected to reach 1.3 million in 2015, which is still below the underlying demand of about 1.5 million, but should gradually normalize as lenders open their credit box more to builders. New-home sales totaled 440,000 in 2014, and will increase to 620,000 in 2015.

Despite the projected growth, issues like lagging inventory and rising rents could negatively impact the market this year. In addition, Yun says tight credit standards, an increase in multi-generational households, and student debt are contributing to a decrease in first-time buyers to a low not seen since 1987. He recognized the new credit scoring calculation recently announced by Fair Isaac Corp., or FICO, as a positive for first-time buyers, but added that mortgage insurance premiums are too high in relation to default rates.

Right now, Yun says NAR is "feeling better" about home prices — namely because consumers assess real estate value in terms of overall sentiment and confidence in the market. The sales activity, on the other hand, is for real estate practitioners. "Sales have been bouncing up and down, but the prices — which impact all homeowners, whether they are in the market or not — have been consistently rising," says Yun. "This is a very good sign that the housing market is returning to a [more] healthy condition."

Finger on the Pulse of the Market

To Washington REALTORS® who want to keep their fingers on the pulse of the market, Yun says the job market will remain one of the key metrics to watch. "When employment rates go up, nearly everything rises with them," says Yun. "Concurrently, this type of growth allows people to find new jobs and that translates into relocations."

Yun also urges REALTORS® to keep an eye on overall housing inventory within their respective markets and on a national level. "Right now, it looks like we’re short on inventory in relation to buyers, and that will have some impact in terms of pricing," says Yun. "Prices may be rising a little too quickly." Agents can use this information to help get sellers down off the fence and into the market. "If you have a buyer-client, you’ll want to let them know that it’s hard to get price discounts when inventory is limited," says Yun. "For sellers, an inventory shortage is a great opportunity to bring their property onto the market."

On a final note, Yun says the Millennials who have been living with their parents for the last few years — waiting out the recession and living cheaply during the slow-moving recovery — now present a good opportunity for real estate agents.

"Living with your parents is not the American Dream," Yun points out. "These younger buyers want to come out and purchase, but they’re waiting for better economic conditions. Given that the economy is improving steadily, I think we’ll begin to see more people branching out on their own and [buying homes]."

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