Economist: Market surges as housing preferences change
As home sales have surged and housing preferences have changed, the pandemic has had some unexpected results on the real estate market.
The chief economist of the National Association of Realtors joined Utah Realtors this week at a virtual conference to talk about trends in the economy and housing market.
“The housing market recovery that has taken place is quite a surprise,” Yun said.
He said that even though he knew the housing market was on much firmer ground compared to 10 years ago, he was surprised by market’s exceptionally strong resilience.
“When the reporters asked me, ‘Are we going to have another foreclosure crisis?’, I said, ‘No, because we have an inventory shortage and fortunately we don’t have bad lending of subprime loans,’ but I never expected home sales would be rolling along during the second half of the year,” he said.
Yun, who earlier this year forecasted U.S. home sales to decline 15% because of the pandemic, now expects the number of transactions to increase 0-3% this year.
“Even as we missed the critical spring buying season, the second half will be so strong, we’re going to make up for that. So no decline in home sales in 2020.”
He also expects home prices to rise 3-5% this year.
“Last summer, you had a good market condition,” Yun said. “This year, it is even better. So it’s quite remarkable that the housing market is making this huge upswing.”
The housing indicators also point to a strong fall and winter. The number of contracts signed to build homes increased 10% in July, which will translate into closing activity in September and October that is much higher than one year ago.
“This autumn is going to hold on very well based on pending contracts,” Yun said.
The winter market also looks strong because there are many buyers in the pipeline. Buyers are pre-approved for loans, and mortgage applications are up 30% compared to one year ago as people take advantage of 2.8% interest rates.
“This is going to be some of the best winter activity for home sales based on the trends on the mortgage data,” Yun said.
Moving into 2021, Yun forecasts a 6-10% increase in U.S. home sales, and a 2-3% gain in prices as builders provide more housing inventory.
“2021: positive, positive, positive, especially as more people begin to recognize ‘I can work from home,’ ” he said.
Moving to the Suburbs
The pandemic is changing the types and locations of homes people want. As more companies allow employees to work from home, either full time or partially, buyers are moving to less crowded areas where they can get a bigger home for less money.
The work-from-home trend was already happening, but the pandemic has accelerated the trend and condensed it into one year instead of 10.
“The suburbs will be a key beneficiary of this trend that was happening slowly but has suddenly accelerated, especially in high-cost markets,” Yun said.
With commuting being less important, Yun said people are moving away from very expensive markets.
“Why live in San Jose when people can live in Denver, Salt Lake City or Boise, Idaho?,” he said.
He also expects vacation and secondary home sales to rise because of remote work.
“There could be sizable demand increases in places like Park City and resort destinations to say, ‘If I can work from a vacation home, why not?’,” Yun said. “So you may also see a lift in the many resort areas.”
Finally, remote work is changing the space that people need.
“People who were very happy with their home before the pandemic suddenly say, ‘A three-bedroom home is insufficient. I need a fourth bedroom to make it into a dedicated office space,’ ” Yun said.
These are just a few of the changes the housing market is experiencing because of the pandemic. To stay up-to-date on all the trends affecting real estate in your area, contact your local Realtor. Find a directory of Utah Realtors at MyRealtorStory.com.