According to the National Association of Realtors, more millennials entering their prime homebuying years, rising household formation, and continued job gains boosting overall demand are expected to be behind the slight increase in existing-home sales in 2017.
Lawrence Yun, chief economist of the National Association of Realtors, presented his 2017 housing and economic forecast and was joined onstage by Dennis Lockhart, president and CEO of the Federal Reserve Bank of Atlanta, who discussed the economic conditions that he believes support what will be a "net positive" for the housing sector.
Heading into the final months of data for 2016, Yun expects existing-home sales to finish at a pace of about 5.36 million - the best year since 2006 (6.47 million). In 2017, sales are forecast to grow roughly 2 percent to around 5.46 million, and then with a more prominent jump of 4 percent in 2018 (5.68 million). The national median existing-home price is expected to rise to around 4 percent both this year and in 2017.
In front of a packed room of thousands of RealtorsÂ® and industry guests, Yun and Lockhart both commented that the housing market this year has been a mixed bag of positives and challenges.
"The gradually expanding economy, multiple years of steady job creation and mortgage rates under 4 percent all contributed to sizeable interest in buying a home this year," said Yun. "However, it's evident that demand and sales slightly weakened over the summer as stubbornly low supply limited buyers' choices, accelerated price growth and hindered some consumers' belief that now is a good time to buy a home."
Lockhart remarked on current inventory levels impacting affordability. Citing limited land availability, shortages in construction labor and tight credit for homebuilders, Lockhart said these factors are contributing to the overall supply shortages for affordable housing.
Looking to next year, Yun thinks the tight supply and affordability issues affecting buyers in many markets will very slowly but surely start to abate. As housing starts steadily increase, both he and Lockhart are optimistic that housing demand will include leading-edge millennial households finally dipping their toes into the market at a growing rate.
In NAR's recently released 2016 Profile of Home Buyers and Sellers, the median age of first-time buyers was 32. According to Yun, while repaying student debt, shaky job prospects after the recession and marrying and having children later in life have delayed first-time buyers' ability and willingness to buy, the wave of potential buyers entering their 30's is increasing considerably in coming years.
"NAR surveys from both current renters and recent buyers prove that there's an overwhelmingly strong desire among the younger generation to own a home of their own," said Yun. "The housing market over the next couple of years should get a big lift in demand from these new buyers. The one caveat is it's essential that there's enough new and existing supply at entry-level prices for them to reach the market."
Lockhart remarked, "The coming years of housing demand will be millennial-driven and will support the single-family sector."
Yun anticipates housing starts to jump 5.3 percent next year to 1.22 million. However, this is still under the 1.5 million new homes needed to make up for the shortfall in recent years and keep up with the growing demand. New single-family home sales are likely to total 570,000 this year and rise to around 620,000 in 2017.
"Multi-family housing construction has dominated the building landscape in recent years and only recently started to level off," said Yun. "Hopefully this is a sign that homebuilders will begin to significantly shift their focus to single-family housing. Both a large bump in new homes and homeowners selling is needed to get supply levels at healthier levels."
Commenting on the overall health of the U.S. economy, Yun noted that continued overseas instability and flat business investment will lead to an unsatisfactory year of expansion. Although a boost in exports fueled economic growth to just a tick under 3 percent in the third quarter (first estimate), GDP for all of 2016 is still expected to be under 3 percent for the eleventh straight year.
"While the gains have been uneven by state, region and even gender, the 15 million jobs created since 2010 have bolstered consumer spending and housing demand," said Yun. "Over the next two years, the economy will likely stay on a path of around 2 percent growth with a tightening labor market and stronger inflation."
"The pace of job gains has been stronger than economic growth the last two years," remarked Lockhart. "The housing sector has challenges, but the industry's near-term outlook is one of continued improvement."
Yun foresees a gradual uptick in borrowing costs heading into next year. By the end 2017, he expects rates to be around 4.5 percent. Lockhart also anticipates a gradual uptick in rates in the next two years, but said the economy currently does not call for a quickly rising rate environment.
"Increasing mortgages rates have the potential to further dent affordability in markets where supply struggles to recover to more balanced levels," said Yun. "Despite these likely pressures, the increase in home sales next year will be supported by the continued release of pent-up demand and the beginning of stronger participation from first-time buyers."