This year has been full of surprises, but the biggest might be how exceptional the housing market is performing, National Association of Realtors Chief Economist Lawrence Yun said on Tuesday.
In a panel at the NAR 2020 Realtors Conference and Expo, Yun discussed what a Biden presidency could mean for the housing market, the future of mortgage rates and how to remedy low housing inventory.
Throughout his presidential campaign, former Vice President Joe Biden advocated for housing, including introducing a $15,000 homebuyer tax credit.
“[The tax credit] would be immediately available at closing, so rather than filing your tax return on April 15 to get this tax credit, it would be available immediately at the closing, which in essence means that it is a downpayment assistance,” Yun said. “I’m sure there will be some income phase-out so that millionaires do not get this, but for many moderate-income families, this could be quite substantial down payment assistance.”
A lingering trend in the housing market has been the increase of homeowners relocating to the suburbs and vacation towns. Now that work-from-home policies have been implemented for many, employees don’t need to live in the cities anymore. In fact, Yun said that working from home has made office occupancies decrease by nearly 41%.
While working from home has been widespread as a result of the pandemic, Yun said that he believes this trend will continue even once a vaccine has been discovered.
“…If one does not have to commute every single day, then people may say ‘well I don’t mind living further out from the downtown areas,’” Yun said.
Homeowners are relocating to bigger, more expensive homes. Not only that, but more homes are becoming multi-generational, too.
“The rise in prices partly reflects that people are buying larger size homes, so prices are rising,” Yun said. “But if you look at the constant quality price index, like Case Shiller or FHFA…it is also beginning to show slight acceleration. And I anticipate as more data becomes available, it will show even greater acceleration based on the trend of the multiple offers.”
Housing inventory has remained lower than ever this year. Yun said one thing that could encourage builders to create more inventory would be a tariff that could bring down the price of lumber.
Going forward, Yun said that the homeownership rate could be challenged because “we simply don’t have enough supply.”
“Not enough homes for sale means multiple offers, prices rising too fast, and it may limit some of the renters from becoming owners,” Yun said. “So this is concerning, we need to ensure that one exchange is available so we can move those land sales into home builders because we need to boost the housing supply. Same situation for newly constructed home inventory…very abnormal condition, just not enough supply.”
Mortgage rates have also been lower than ever this year. Yun predicts that in 2021, mortgage rates will stay roughly the same.
“It was two days ago when Freddie Mac’s CEO said he is resigning, and I think that’s based on the decision that Joe Biden will be the incoming president, because he may have perceived that Fannie and Freddie perhaps could be privatized under President Trump,” Yun said.
“But now under Joe Biden, he will be widening of the government guarantee, which means that mortgage rates should remain very low without the privatization because we want to ensure that Fannie and Freddie do not make a mistake of chasing after subprime lending as what happened 10 years ago, but just serve the role of homeownership to assure that government guarantee provides the lowest interest rates for credible homebuyers.”
Over the summer, housing markets remained busy due to pent up demand from spring-time homebuyers waiting out the pandemic. Yun said that winter should remain busy as well, and even into spring 2021.
“Pending contracts are up strongly, implying that this winter may be one of the best winters for home sales activity,” Yun said. “I mean, it’s not going to be spring or summer, so one has to compare this winter with other past winters. And by winter to winter comparison, this year could be one of the best based on the breakout of the pending contracts at a much higher level.”
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