ORLANDO — NAR Chief Economist Lawrence Yun is speaking at the National Association of Realtors convention here right now.
He is taking about inflation, which has been relatively low for two decades. He says it will stay at about 2 percent next year.
But he says we should anticpiate higher inflation by 2015. “No threatening inflation next year, 2 percent. Eventually we may reach something much higher, 4, 5, 6 percent by 2013. Well above the Federal Reserve’s preferred rate of 2 percent.” The pressure on inflation will come from the large budget deficit.
“Rents are rising. Inflation pressure will be building in the rental market. Vacancies are falling and rents are rising.
The Fed has an “ultra-loose monetary policy, 0 percent, an unprecedented low rate. You cannot borrow at this rate but Mark Vinter and Wells Fargo can.”
The mortgage interest deduction will be discussed as a way to increase revenue and decrease the public debt. But Yun says it will not happen because of the efforts of his audience, the Realtors, to pressure the government to keep it in place.
Higher inflation means that the home mortgage interest rates will trend up.
Yun is forecasting “meaningfully higher home prices, which went up 4 to 5 percent in 2012.
“Home price growht ckoud slow or accelerate depending on housing starts.” Yun ecpects a 15 percent cumulative growth in home prices over the next three years. The rise in prices are not showing any signs of slowing down.” Arizona has already seen a 30 percent increase since the bust.
“Rises in prices will bring more underwater homeowners above water and then they can participate in the market.”
Her prdicts the price will rise from $176,000 to $195,ooo. “The train has left the station, but it is still a great time to buy, because if you wait, the train will be farther from the station and you will miss the chance for wealth creation.”
Realtors are seeing more traffic, and showings are consistently strong. Pending home sales are trending up.
Home sales will be 4.6 million units this year and 5.05 million units in 2013, says Yun.
Employment is a key to home purchasing. While the unemployment rate is falling, Yun looks at the “employment rate.” About 62 percent of adults have jobs. This number is not increasing. Only enough jobs are being created to soak up the new graduates. But there is plenty of room for improvement, he says. “We need 250,000 new jobs every month for the next eight years to get back to a normal job market. It is trending up, but it could trend up faster.”
Builder inventory is at a 50-year low. Builder activity is rising, but only from a very low level and housing starts are at less than half of the 50-year average of 1.5 million units per year.
Good new for all segments of housing, he said, is that the “shadow inventory” of distressed properties is shrinking. Foreclosures are clogged in judicial states and flowing freely in non-judicial states such as Arizona. Whiel home prices are up 7 percent in Miami, they are up 19 percent in Arizona.
Yun forecasts a more unqual distribution of wealth. “That is something we need to monitor.”
He is putting a lot of pressure on the builders: If they don’t build enough new homes, it will rise prices, which would be good for existing homeowners but will cut into home affordability for all those renters who want to become homeowners. What we are seeing now is that wealthy investors play a strong role in the market and are keeping some “end-user” buyers out. This is evident in Sarasota, where all-cash investors are outbidding buyers who would live in a house they would buy with a mortgage.
Renting is up strongly and homeownership is off a bit. Normally, homeowners are 66 percent of the market. And the household formation increase has been more in the rental market rather than home purchases.
Hurricane Sandy’s property destruction will provide building permit impetus in New Jersey, boosting the market there in a few months.
Florida: Yun points out that Florida’s job growth, weak or falling recently, since 1939 has boomed, and if that overall growth trend resumes, the state could run out of prime real estate development land, particularly as Chinese and Brazilian buyers come to the state.
His applause line: “The financial institutions are flush with cash. Why are they not lending?”
He closes with this: Keep the mortgage interest deduction. Taking it away will be a huge hit to the housing industry.
Wells Fargo economist Mark Vinter comes back on stage and says, “Our bank is lending. It is that other bank.”
Chase? Bank of America? I will have to ask him that later.
In case you did not know: Yun is pronounced Yoon.