Pent-Up Demand

Firing up the fence sitters.

March 1, 2008

With the economy weakening, we’re unlikely to see today’s slow home sales pace pick up in the near future, but the picture isn’t uniformly bleak; sales have appeared to stabilize around a 5 million annualized sales pace, suggesting we might be seeing the formation of a bottom.

What’s more, there continues to be considerable pent-up demand for homes. Although job growth is slowing, with the pace of new jobs sinking to about 83,000 a month in the second half of last year, down from 189,000 a month in 2006, job growth has been vastly outperforming housing, with more than 4 million jobs created since the housing market peak in 2005. Aggregate household wealth is also up during that period, by some $1.4 trillion.

Historically, the housing market sees one new buyer for every two new jobs created, but this time around that hasn’t been the case.

So, although consumers have the wherewithal to buy — particularly since home prices nationally are down and interest rates remain low thanks to the Federal Reserve’s dramatic rate cut in January — many are sitting on the fence. It’s a fair guess that consumers are waiting for home prices and even interest rates to fall even further.

Clearly, housing continues to underperform. But as long as demand keeps growing, it’s just a matter of time before the housing market turns around and becomes an engine for, rather than a drag on, the economy.

Lawrence Yun
Chief Economist and Senior Vice President of Research at the National Association of REALTORS®

Yun oversees and is responsible for a wide range of research activity for the association including NAR’s Existing Home Sales statistics, Affordability Index, and Home Buyers and Sellers Profile Report. He regularly provides commentary on real estate market trends for its 1.3 million REALTOR® members.

Dr. Yun creates NAR’s forecasts and participates in many economic forecasting panels, among them the Blue Chip Council and the Wall Street Journal Forecasting Survey. He also participates in the Industrial Economists Discussion Group at the Joint Center for Housing Studies of Harvard University. He appears regularly on financial news outlets, is a frequent speaker at real estate conferences throughout the United States, and has testified before Congress. Dr. Yun has appeared as a guest on CSPAN’s Washington Journal and is a regular guest columnist on the Forbes website and The Hill, an “inside the beltway” publication on public affairs.

Dr. Yun received his undergraduate degree from Purdue University and earned his Ph.D. from the University of Maryland at College Park.

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