New-build figures at a 50-year low will help to boost American home prices by around 6% next year, the National Association of Realtors’ conference has heard.
United States home prices are set to continue rising – by around 6% during 2014, a leading trade conference has heard.
With construction rates at their lowest for almost 50 years, prices are set to remain high during the next year, the 2013 National Association of Realtors’ (NAR) Conference & Expo has been told.
“Housing starts are the only way to alleviate inventory shortages. Housing starts need to rise fifty per cent to meet underlying demand,” NAR’s Chief Economist Lawrence Yun told the four-day San Francisco conference, which ended today (Monday).
The national median existing-home price for all of 2013 will be up just over 11% to around US$197,000; then increase nearly 6% next year.
Around 21,000 realtors from America and beyond plus a significant number of guests signed up to attend the conference, around 10% up on original expectations.
Mr Yun named the top 10 US markets to watch in 2014 as Salt Lake City, Utah; Naples and Tampa, Florida; Atlanta, Georgia; Boise, Idaho; Houston, Texas; Charlotte, North Carolina; Denver, Colorado; Seattle, Washington; and Tucson, Arizona.
He also predicted the top 10 Turnaround markets as Detroit and Ann Abour, Michigan; Santa Barbara, California; Las Vegas and Reno, Nevada; Fort Lauderdale and West Palm Beach, Florida; Dallas, Texas; Boston, Massachusetts; and Boulder, Colorado.
Existing home sale volumes have shown a 20% cumulative increase over the past two years, while prices have gained 18%, but incomes have risen only 2-4%, so affordability is an issue, Mr Yun says.
“While the median-income family in many areas will still be well positioned to buy a home in 2014, income is barely budging given growth in consumer prices.”
“We’ve come off of record high housing affordability conditions in the past year, and are now at a five-year low, but conditions are still the fifth best in the past 40 years,” Yun said. “While the median-income family in many areas will still be well positioned to buy a home in 2014, income is barely budging given growth in consumer prices.”
As mortgage interest rates rise, refinancing will collapse in 2014 to the lowest level in at least 15 years, and he says, hopefully bringing about a rise in property buying. “This is an incentive for banks to increase mortgage origination, especially considering the low default rates in recent years. But even with cheap mortgages for the past four years, all-cash buyers stayed high, accounting for over thirty per cent of sales.”
Limited supplies were the biggest factor in price performance in the past year, with inventory at a 13-year low and seriously delinquent mortgages have been falling. Yun expects the inventory shortages to be felt again next spring.
Housing starts are forecast to hit 917,000 this year and reach 1.13 million in 2014, which is still well below the underlying demand of about 1.5 million. New-home sales are likely to total 429,000 in 2013, and grow to 508,000 next year.
Inflationary pressure may begin to build during the course of 2014, with consumer prices projected to rise 2.7%, but Mr Yun says inflation could reach 4-6% in 2015. Mortgage interest rates are expected to rise to 5.4% by the end of next year.
Mr Yun projects growth in Gross Domestic Product to be 1.7% this year and 2.5% in 2014. “If not for the housing recovery, we could be on the verge of a recession. The rent component of inflation is rising, so the only way to tame price growth is new home inventory.”
Also speaking was John Krainer, Senior Economist at the Federal Reserve Bank of San Francisco, who agrees about the construction figures. “New-home sales are significantly underperforming, and have been bouncing around World War II lows.
“There is a big disconnect between rising home prices and inventory slowing down. Normally, higher levels of new construction would be expected in a rising sales environment.”
The National Association of Realtors, America’s largest trade association, represents one million members involved in residential and commercial real estate sectors.