At a recent event put on by the Northeast Association of Realtors we heard a very positive presentation by the Dr. Lawrence Yun, Chief Economist for the National Association of Realtors. The best news that I heard was that the first half of 2012 has been the best real estate market of the past five years. There is evidence that this trend will continue suggesting that the market is recovering, albeit slowly.
According to Dr. Yun, statistics report that 53% of REALTORS own at least one investment property, suggesting that if REALTORS think this a good time to buy investment property, then others should as well. In fact, one of the rising trends in home purchases is investors. The reason for this, Yun explained is that credit standards are still much too strict to afford most first time buyers the opportunity to buy a home. Dr. Yun cautions that if this trend continues, whereby credit standards are too strict, then investors with large down payments or cash offers will reap the greatest reward. The inherent problem with this situation is that the rich get richer and the working middle class gets poorer. Dr. Yun does not suggest that we go so far as to offer the types of mortgages that put this country into a sub-prime catastrophe, but he said it’s critically important for lenders to become more lenient and start issuing mortgages to working class people who have decent credit history of paying on time.
In addition to investors, another segment of the market that is likely to grow in the coming months and years is immigrant home buyers. Dr. Yun shared that 3 million people immigrate to the United States each year and this results in an average of 1 million new households. In the past five years, those immigrating to the US do not seem to be creating the 1 million new households per year as they had previously, suggesting that immigrants are nervous about the market and many have moved in to shared homes with other family members already living in the United States. This means there could be a pent-up demand for housing for immigrants who will want to eventually move into their own household units. They may elect home ownership or the may elect renting. If they elect to rent this will further drive up rent prices in many markets making it even more lucrative for renters to consider buying.
Dr. Yun noted that affordability for homes in 2012 is the best it has been in more than forty years. Contributing to this is the rising cost of rent; a solid stock market recovery since 2008; consumer confidence for buying real estate is increased since buyers now feel they are purchasing an asset that will appreciate; young adults moving out of parents basements; and a large pool of investors from around the world that are actively investing in real estate.
There are many factors that could interrupt our steady housing growth in the future. For example, the market could not tolerate a capital gains tax for selling primary residences, loss of the mortgage interest deduction, or further tightening of credit standards. For REALTORS this means that involvement in your REALTOR political action committees is absolutely essential. Stay informed and voice your opinion to Congress. All in all, it sounds like we are on the road to recovery. With a little bit of luck we will stay on it.