Real Estate Articles
NAR chief economist says real estate a great hedge against inflation
The outlook for the residential real estate market, which performed exceptionally well during the height of the pandemic, continues to be promising, but will likely transition to more normal conditions in 2022, according to Dr. Lawrence Yun. The National Association of Realtors vice president and chief economist delivered the nationwide housing assessment last week at the NAR 2021 Realtors Conference & Expo in San Diego.
"The housing market has been the silver lining in this challenging Covid market," said Yun. "All markets are seeing strong conditions and home sales are the best they have been in 15 years. The housing sector's success will continue, but I don't expect next year's performance to exceed this year's."
An unknown, Yun said, is how remote work opportunities will play out in the future and advised that the industry keep that in mind. The work-from-home model has taken off among employees, giving them the flexibility to work from anywhere.
"We are only in the first innings of work-from-home options. People have not fully digested the work-from-home-flexibility model yet in determining home size and locational choice," said Yun.
Yun said even though there may be a decline in sales in 2022, he still forecasts home sales will outdo pre-pandemic levels. His prediction is based on an anticipation of more inventory in the coming months. That supply will be generated, in part, from new housing construction, which is already underway. Also, with the conclusion of the mortgage forbearance program, mortgage delinquencies will cause a number of homeowners to sell, but the number of foreclosures will be unlike that of the Great Recession and those houses will not stay long in the market.
"With more housing inventory to hit the market, the intense multiple offers will start to ease," Yun said. "Home prices will continue to rise but at a slower pace."
The job market, which struggled during the pandemic, has turned a corner and continues to make incremental progress, Yun explained. Since the nation emerged from lockdown, 18 million jobs have been created. The unemployment rate at 4.6 percent implies the U.S. economy should be back to normal, however, the country is still facing an employment shortage. There are four million fewer jobs now than the number of jobs prior to the arrival of COVID-19.
Yun noted some areas in the nation are thriving and are already fully recovered. Idaho and Utah are two states that have reported currently having more jobs now than at the beginning of the pandemic.
While real estate has thrived, Yun says there are signs that a more normal and predictable market is on the horizon. Home sales have surged over the past year in an uncharacteristic manner, many receiving multiple bids after only being on the market for a brief period.
Yun projected that mortgage rates, which are currently at 3 percent, will likely see an increase of 3.7 percent by this time next year, a rise he attributes to persistent high inflation. Home prices rose by 12 percent on average in 2020 and 2021, while inflation rose 3 percent.
"Housing prices have outpaced people's income. The price-to-income ratio is at alarming levels," said Yun. He predicts the housing sector will settle down, but prices will hold on and be at above pre-pandemic levels because rents are rising.
"Rising rents will continue to place upward pressures on inflation," said Yun. "Nevertheless, real estate is a great hedge against inflation."
This year's event was offered to NAR's 1.5 million members in a hybrid platform. Representing the Silicon Valley Association of Realtors in San Diego were President Joanne Fraser, NAR Directors Jim Hamilton and Denise Welsh, and Executive Officer Paul Cardus.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
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