Event Coverage
We Are Not In a Bubble, Says NAR Chief Economist
Dr. Lawrence Yun compares job creation and housing construction in the Bay Area with Dallas and Houston.
At SILVAR's 2017 Economic Seminar & General Membership Meeting, National Association of REALTORS® (NAR) Chief Economist and Senior Vice President of Research Dr. Lawrence Yun answered a question that many people have been asking: Is the country in a bubble?
Yun said no, explaining conditions today are fundamentally different from the bubble of a few years ago. Home sales are recovering and we don't have the subprime lending we had before. Mortgage lending has stringent requirements today - almost too stringent. There is job growth and business and consumer sentiments are high.
Like Silicon Valley, though to a lesser extent, much of the nation is experiencing high demand, rising home prices and low inventory, said Yun. The economy is growing, though not at a robust pace. Much of the housing shortage is due to the lack of home construction because of shortage of lots, lack of skilled workers, stringent lending, the high cost of lumber due to higher tariffs, and tedious and costly regulations.
Regarding the low housing affordability and inventory in the Bay Area, Yun warned, "Unless we address the housing issue, jobs will go elsewhere."
Yun indicated in a recent survey 80 percent of respondents said they still believe that owning a home is the American dream, and about 87 percent said they plan to buy a home in the future; yet, there is a mismatch between the desire to own a home and the reality because the homeownership rate is still at a near 50-year low.
Why are people not buying? Yun pointed to student debt, which has tripled in the last 10 years. A Kansas City Federal Reserve study estimates there are 6.9 million missing households. Many of those are young adults ages 25 to 34 who are still living with their parents. The situation is understandable in the Bay Area where the cost of housing is prohibitive, but this occurrence is nationwide.
Yun projects 2017 will end with 1.7 percent GDP growth and forecasts 2.7 percent GDP growth in 2018. Unemployment is down and he expects job growth to continue through 2018.
"I do not see a recession over the horizon with continuing job creation," said Yun.
However, uncertainties lie ahead:
Rising interest rates. Yun expects 2017 will end with a 4 percent 30-year interest rate and forecasts 4.5 percent in 2018.
"We're in a rising interest rate environment," said the NAR chief economist.
Fannie Mae and Freddie Mac will be a 2018 issue. "Without them, mortgages will be difficult to access," warned Yun.
Dodd-Frank Wall Street Reform and Consumer Protection Act. Under the current administration it is very likely that many Dodd-Frank requirements will be lifted.
FHA mortgage insurance premiums. One of the first things the administration did when taking office was suspend a cut to the FHA mortgage insurance premium that President Obama announced during his final days in office. Yun said NAR was told the Trump administration had no issue with the FHA and only suspended the cut because they were issued by Obama.
Then there is the GOP tax reform proposal. Yun said the current tax reform proposal has unintended consequences for middle class homeowners. The proposal fundamentally changes the homeownership incentive structure by diminishing the role of the mortgage interest deduction (MID) and will result in less of a push for people to be homeowners. The proposal calls for raising the standard deductions and keeping the MID, but does away with personal exemptions and eliminates state and property tax deductions, which are big incentives for homeownership. NAR estimates homeowners with incomes from $50,000 to $200,000 could face average tax hikes of $815 in the year after enactment.
"One wonders, is this the direction America wants to pursue?" Yun asked out loud.
The homeownership incentives are so critical for a strong housing market that creates jobs and builds stable communities that Yun underlined the importance of REALTORS® answering NAR's Call for Action and urging Congress to reform the tax code and protect middle class homeowners.
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.
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