Paul Bishop is the vice president of research for the National Association of Realtors® and leads the research division’s survey and market research activities, which include analyzing real estate business and policy issues. He took questions from Hardware Retailing magazine about the housing market.
Hardware Retailing (HR): What housing trends are you seeing?
Paul Bishop (PB): The number of homes available for sale has been unusually low for as far back as 2012. That has caused problems for buyers in finding the right home in a price range that’s affordable.
When there are relatively few homes available on the market, prices increase. And prices have been increasing nationally at a rate of about 5 percent over the last several years. For the average buyer who’s looking to make their purchase, it’s becoming more difficult to find a home that’s affordable.
There have now been several years where there simply are far fewer homes available on the market for sale than is necessary to meet the demand for home purchases. The economy continues to strengthen, jobs are relatively plentiful and incomes are starting to increase, driving demand for housing at the same time that we have an usually low supply of homes on the market.
HR: Why are so few homes on the market?
PB: Part of that is the hangover effect from the financial crisis. We saw a lot of people who weren’t in the financial position to buy a home or didn’t want to move forward with a home purchase, given the uncertainty of the economy.
Now that the economy has picked up, there’s a strong demand for new homes but we haven’t been building nearly as many homes as in the past. The number of single-family housing starts went from about 1.7 million in 2005 to a low of under 500,000 during the financial crisis. We’re now just creeping our way back toward 1 million.
Given that there was pent-up demand building all along, it’s not just a matter of getting back to where we were. There are a lot of homes that went unbuilt, so we’re trying to catch up with that to meet the growing demand. That’s caused the inventory to be very lean in virtually every part of the country, which has resulted in higher home prices in virtually every part of the country, too.
Coming out of the foreclosure crisis, a lot of investors stepped in and purchased foreclosed homes. Those homes tended to be at lower price points. Now, those houses are being rented out, so they’re not available for sale. At the same time, rents are increasing at a relatively rapid pace. With your rental expenses rising each year at the same time as home prices increasing, saving for a down payment is difficult.
In addition, mortgage rates have been creeping up for the last year or so. Those things have made affordability a significant challenge, not just for first-time homebuyers, but also for anyone looking to buy a different home, trade up or relocate to a different part of the country.
HR: What are some specific challenges for new construction?
PB: There is a shortage of skilled labor in the building trades. Carpenters, masons, drywall people, all those skilled trades that are necessary to build either residential or commercial construction. Building material prices have been increasing, as well. In some fast-growing metropolitan areas, there is a shortage of buildable lots.
We also hear that the process builders and developers face when they’re looking to get zoning and all the other local approvals necessary to start residential or commercial construction, is that it’s taking longer and longer than it has in the past. Those are some of the factors builders mention as some constraints they’re facing and why they are unable to build more homes than they are, even though they recognize that there’s a strong demand for new homes.
HR: What do housing and construction trends say about the U.S. economy?
PB: Housing—or real estate, more broadly—accounts for just under 20 percent of GDP. Roughly $1 out of ever $5 in the U.S. economy can be connected to the real estate sector. The limitations on how quickly and strongly the real estate sector can grow have implications for the economy overall. So, what we’re anticipating, as we look at the rest of 2018 and into 2019, is a continued growth in the national economy.
Factors related to economic growth and the financial markets suggest that up is the likely direction for interest rates over the next 18 months or so. Putting all those factors together with rising interest rates still limits the housing supply and increases affordability challenges. We’re anticipating that existing home sales will be up just a little bit in 2019 from 2018, and home prices will increase, but at a slower rate in 2019.
HR: Do you expect the remodeling market to stay strong?
PB: A lot of remodeling is discretionary. You can delay upgrading your home a year or two if you’re unsure about your own financial situation or the economy is a little wobbly or you’re concerned about your job stability. As long as the economy continues to stay relatively strong, the outlook for home remodeling is going to reflect that.
One of the longer-term trends is that we have a large cohort of baby boomers, many of whom are homeowners with a very strong desire to age in place. The typical pattern we’ve seen of previous generations selling the family home and moving to a smaller home or a retirement community is less prevalent. That suggests many homeowners will look to remodeling and upgrading to make it easier for them to stay in their homes well past what we might typically imagine. It’s a hard decision for anybody at any age to decide to move. It’s hard work and there’s expense. If the alternative is to invest in one’s home to make it more desirable to stay in for another five or 10 years, then that seems to be a good option for people who are well established in their communities.