Recap of Dr. Lawrence Yun’s Market Report and Economic Forecast
Content written by Carl Johnson Marketing
In his Market Update and Economic Forecast webinar with NC Realtors, Dr. Lawrence Yun, Chief Economist and Senior Vice President of Research at the National Association of Realtors, discussed the current impact of the coronavirus pandemic on North Carolina real estate. When COVID-19 hit in March 2020, a lot of questions were raised by the media regarding whether or not we were going to reach another foreclosure crisis similar to the 2008-2010 period. However, when the economy reopened, we’ve seen a remarkable recovery and have been following mortgage rates. Mortgages reached an all-time low in the US of 2.7% in December and January 2021. As a result, home sales were clicking really high, 5-10% higher than pre-pandemic sales, but we are now beginning to see sales weaken. Dr. Yun discussed why: We need more building activity to relieve the inventory crunch that North Carolina has been facing.
Inventory is at a record low, down 50% since the past year, and is hindering sales activity. Essentially, if there was 20% more inventory, there would be 20% more home sales. Over the past 15 years, America has been under producing homes due to excessive regulation of land use and water usage and the difficulty of finding construction workers. This is the reason behind the housing shortage. Dr. Lu says we will exceed the historical average for housing production over the next year, but only by a small amount. Inventory is declining based on price category, and 100k - 250k priced houses that would be a key starker home market are declining, but as you move up the price scale, inventory declines are less severe. In fact, $1 million+ homes have seen an 80% increase in sales. We will see more inventory and building activity in the fall, however we won’t leave the housing shortage anytime soon.
Although inventory will begin to rise, the concern for many buyers is that mortgage rates will rise while they wait for it to become available. Agents should inform current buyers that the Federal Reserve is not going to raise interest rates, which are currently down to zero at maximum liquidity and won’t raise it for the next 18-24 months. We are, however, facing a rising budget deficit and mortgage rates are rising because people who are buying US treasury bonds are nervous about the rise and want more money. Consequently, the expected mortgage rate will be 3.5%, which is higher but still very favorable.
Dr. Yun concluded his webinar by discussing the likely path for home sales over the current year compared to last year. In the first quarter, homesales were up 12-13% and 40% in the second quarter, which is somewhat artificial given that we were in lockdown during that time last year. There will be little to no change in the third quarter and we will see a decrease in sales during the fourth quarter, but there will be an increase in inventory. Ultimately, when it comes down to the numbers, home sales in 2021 will be comfortably higher than last year and overall unit sales will be better.
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© Carl Johnson Marketing - all rights reserved 2021
Inventory is at a record low, down 50% since the past year, and is hindering sales activity. Essentially, if there was 20% more inventory, there would be 20% more home sales. Over the past 15 years, America has been under producing homes due to excessive regulation of land use and water usage and the difficulty of finding construction workers. This is the reason behind the housing shortage. Dr. Lu says we will exceed the historical average for housing production over the next year, but only by a small amount. Inventory is declining based on price category, and 100k - 250k priced houses that would be a key starker home market are declining, but as you move up the price scale, inventory declines are less severe. In fact, $1 million+ homes have seen an 80% increase in sales. We will see more inventory and building activity in the fall, however we won’t leave the housing shortage anytime soon.
Although inventory will begin to rise, the concern for many buyers is that mortgage rates will rise while they wait for it to become available. Agents should inform current buyers that the Federal Reserve is not going to raise interest rates, which are currently down to zero at maximum liquidity and won’t raise it for the next 18-24 months. We are, however, facing a rising budget deficit and mortgage rates are rising because people who are buying US treasury bonds are nervous about the rise and want more money. Consequently, the expected mortgage rate will be 3.5%, which is higher but still very favorable.
Dr. Yun concluded his webinar by discussing the likely path for home sales over the current year compared to last year. In the first quarter, homesales were up 12-13% and 40% in the second quarter, which is somewhat artificial given that we were in lockdown during that time last year. There will be little to no change in the third quarter and we will see a decrease in sales during the fourth quarter, but there will be an increase in inventory. Ultimately, when it comes down to the numbers, home sales in 2021 will be comfortably higher than last year and overall unit sales will be better.
Click here to learn more about market updates!
© Carl Johnson Marketing - all rights reserved 2021