During the Realtors Legislative Meetings & Trade Expo, Lawrence Yun, chief economist for the National Association of Realtors (NAR), predicted that existing-home sales would reach an annual pace of 5.64 million by the end of this year – an increase of 3.5% compared with 2016 and the strongest pace since 2006, when existing-home sales hit 6.47 million.
However, tight supply, affordability headwinds and modest economic growth will hold sales back, he said.
“The housing market has exceeded expectations ever since the election, despite depressed inventory and higher mortgage rates,” Yun said, as per a release. “The combination of the stock market being at record highs, 16 million new jobs created since 2010, pent-up household formation, and rising consumer confidence are giving more households the assurance and ability to purchase a home.”
Although sales are currently running at a decade high, Yun believes the healthy labor market should be generating even more activity. Listings in the lower- and mid-market price range are scant and selling fast, and home buyers are discovering they can afford less of what’s on the market based on their income.
“We have been under the 50-year average of single-family housing starts for 10 years now,” he said. “Limited lots, labor shortages, tight construction lending and higher lumber costs are impeding the building industry’s ability to produce more single-family homes. There’s little doubt first-time buyer participation would improve and the homeownership rate would rise if there was simply more inventory.”
Although Yun predicted that housing starts would increase 8.4% compared with 2016 to reach 1.27 million, this is still under the 1.5 million new homes needed to make up for the insufficient building in recent years.
New single-family home sales are likely to total 620,000 this year – up 8.4% from 2016, according to NAR’s mid-year forecast.
Should wage growth continue to lag behind, rising home prices will continue to hold things back: The national median existing-home price is expected to rise around 5% this year, according to the forecast.