Economists say turnaround for ‘really weird’ housing market still a year away – Orange County Check In

How is the housing market?

The solution depends on who you ask, says Lawrence Yun, chief economist for the Nationwide Association of Realtors.

“Some people would say it’s terrible,” he told real estate writers at a recent conference. “(Others) will say it’s one of the greatest things that ever happened.”

“So, we really have a weird real estate market where home prices are at record highs, (and) homeowners are smiling. (But) if you ask people who are in the industry — Realtors, mortgage lenders — they’re saying, ‘This is one of the worst housing recessions I’ve ever seen.’ ,

At the National Association of Real Property Editors conference in Austin, seven economists took turns assessing this year’s mysterious real estate market peak year.

With slides, charts and statistics, they mainly mentioned a single factor: home gross sales are too low, and costs and interest rates are too high.

A year ago, economists said the picture was bleak as home sales fell to a 30-year low. However, he predicted that things could get better in 2024.

In turn, 2024 becomes “the year of the master lie,” said Selma Hepp, chief economist at real estate data company CoreLogic.

“We started the year expecting a recovery in the housing market, and it’s turned out to be that,” he said.

Highlights of what the economists had to say are listed below.

household expenses

Despite conditions of higher interest rates and affordability demand, home prices are projected to rise 5.7% this year, up from 3.9% in 2023, according to CoreLogic’s Heap.

– However, home price growth is expected to slow in the second half of the year, said Odetta Kushi, deputy chief economist at First American Financial Corp. The increase in stock for sale and lack of demand will cause price growth to be “slow” due to high costs and limited affordability, Kushi said.

home gross sales

-Yun predicted U.S. home sales will grow in 2024 and 2025, reaching pre-COVID levels by 2026.

They estimated that more than 5 million new and existing homes would change hands this year, down from 4.8 million in 2023. He said about 6 million homes would change hands that year.

– The housing construction boom in the last few years led to an increase in the stock for sale while the existing home stock declined. NAR data shows that 30% of apartments on the market this year are made up of new homes, compared with 16% before the pandemic.

On the other hand, the contemporary decline in housing may be the opposite of that growth.

loan fee

– Over the next 12 months, housing economists predict loan interest rates for 30-year mortgages will fall from an average of 6.8% to just over 5% this year. However, home loan rates have remained slightly higher at 6.9% so far this year as the Federal Reserve suspends rate cuts until this year.

No economist provided a loan charge forecast for the next 12 months.

Affordability

— Prime house prices and persistently high loan rates are pushing the limits for first-time homebuyers.

Daily loan fees for the U.S. home buyer have risen 82% to nearly $1,700 a year since the 12 months before the pandemic, CoreLogic data shows. In Southern California, daily loan fees doubled to $4,123 a year due to the pandemic.

– Los Angeles/Orange County home customers stand to lose $320,500 in purchasing energy when loan rates more than double in 2022, Zillow economist Skylar Olsen said.

Inland Empire customers lost $194,700 in purchased energy when rates increased. San Francisco customers lost $394,000 in purchased energy.

This compares to a purchasing power loss of $120,100 for people overall.

“The typical home is no longer affordable for middle-income families in America,” Olsen said.

– According to Zillow, a middle-income household consumer needs to put down at least 81% to receive money for bills per month within the LA-Orange County section. In San Francisco, where earnings are higher, middle-income patrons are 74% willing to waive fees to get a fair price.

“What this means is that a middle-income family is not buying a home in Los Angeles,” Olsen said.

Many young citizens are angry, Yun said. “They are saying that the American dream appears to be out of reach or indeed impossible.”

home owner

– Homeowners are “sitting on a lot of equity,” Kushi said of the homes’ value exceeding the amount owed on the loan. Forty-two percent of American citizens have their homes free and cloud-free.

He said those who are unaffected by the top loan charges should choose to boost and buy a new home. On the other hand, most homeowners are aging into parks.

– Owners with loans have about $17 trillion in equity, with the opportunity equity for all homeowners totaling about $32 trillion, Hepp said. In California, the typical homeowner has $605,000 in equity.

– Hepp said increased fairness contributes to a “lock-in effect”, limiting the number of homes on the market. “They don’t want to face capital gains (tax) because of the equity gains,” he said.

Unmarried homeowners must pay taxes on gains over $250,000 when they sell their home, for example, married couples must pay taxes on gains over $500,000.

Traders

– Merchants accounted for about 30% of single-family home purchases this year, up from about 20% before the pandemic, Hepp said.

“The number of investors’ purchases has reduced due to lower overall sales, (but) their share (in purchases) remains high,” he said.

residences

– Construction permits for new flats are slowing down, close to reaching traditionally high levels, although an estimated 4.3 million brand new flats will be needed by 2035, says Caitlin Sugrue Walker, vice president of research for the National Multifamily Housing Council. he said.

location of work structures

– Richard Barkham, global chief economist at commercial real estate brokerage CBRE, said a downturn in the administrative center market won’t tear the economy apart because banks have reserves to protect them from real estate losses.

Workplace occupancy is declining as the pandemic has fueled remote work, causing some construction owners to default on their loans. And according to research and data agency MSCI, more than $100 billion of administrative center loans are due to come in that year.

Barkham doesn’t expect a “wave of defaults,” however.

If the structures are making profits, Barkham said, banks will “expand and expand”, meaning they can increase lending despite any potential financial crisis.

Lenders don’t actually want to repossess the entire portion of the real estate. …They don’t want to manage real estate. They don’t want anything to do with real estate,” he said. “Defaults are rising, but widespread fire sales in commercial real estate are not happening.”