A Confluence of Positive Trends

Jobs, low mortgage rates, and improving inventory are bolstering home sales.

September 17, 2014

After a slow start this year, partly due to the frigidly cold winter, home sales are picking up steam. Existing-home sales have risen for four straight months and in July were at the highest pace of the year, 5.15 million. Pending contracts point to more gains, too.

Jobs are always important for home sales, and in the last 12 months they’ve grown by 2.6 million. North Dakota, Texas, Utah, and parts of California are good examples of job growth leading to healthy real estate activity. Amazingly, mortgage rates refuse to rise, even after the Federal Reserve has started talking about tightening its monetary policy, keeping the recovery intact.

The inventory shortage is also improving. There were 2.4 million homes available in July, the highest in two years. Buyers typically like to view 12 to 15 homes before choosing one, so now it’s likely they’ll find more options during their search. New-home construction inventory is also rising as groundbreakings rise. What’s more, all-cash investors are stepping away, giving first-time buyers a better chance to get into the market. Investors made up 16 percent of all transactions in July, while first-time buyers comprised 29 percent.

Meanwhile, the damaging stuff is vanishing. Distressed property sales—REOs and short sales—are at their lowest levels since at least 2008. Only 9 percent of sales were classified as distressed in July, down from 15 percent a year ago.

There’s more good news. The funds from the taxpayer bailout of Fannie Mae and Freddie Mac have been fully paid back. In fact, recent profits from the two companies have become revenue for the federal government. Meanwhile, the FHA bailout is on track to be paid back by year’s end. In addition, the number of seriously delinquent mortgages is down from 10 percent a few years ago to just 4.8 percent in the second quarter.

All in all, the housing market is steadily improving, and growth potential remains strong thanks to continuing pent-up demand. For these reasons, we’re forecasting growth in four of the next five years. (The one down year simply reflects the reality that data never moves in a straight line in any direction.) Look for annual sales to reach well beyond the 5 million mark in the near future.

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.