[Annual Termite Control Issue] Housing Forecast Offers Mixed Signals

Existing-home sales are forecasted to rise about 7 percent in 2015 behind a strengthening economy, solid job gains and a healthy increase in home prices, all good news for PMPs involved in the termite market, but some headwinds still remain, according to National Association of Realtors (NAR) Chief Economist Lawrence Yun.

Yun said existing-home sales in 2014 got off to a slow start, but rallied behind improvements in inventory, slower price gains and pent-up demand.

“The improving job market has consumers feeling more confident, and the rebound in home prices is building household wealth for homeowners and giving them the ability to sell after waiting the last few years,” he said.

For all of 2014, there were 4.93 million existing-home sales, a 3.1 percent decline from 2013 (5.09 million). “Sales were measurably better in the second half — up 8 percent compared to the first six months of the year,” Yun said. Sales are forecasted to increase to 5.3 million in 2015 and 5.4 million in 2016. Yun said he expects the national median existing-home price to rise 4 percent both next year and in 2016.

“Home prices have risen for the past three years cumulatively about 25 percent, which boosts confidence in the market and traditionally gives current homeowners the ability to use their equity buildup as a down payment towards their next home purchase,” Yun said.

“Furthermore, first-time buyers are expected to slowly return as the economy improves and new mortgage products are made available in the marketplace with low down payments and private mortgage insurance.”
 

Possible Speed Bumps.

Despite the forecasted higher pace of sales in the next two years, Yun said headwinds do remain that will likely hold back the housing market from reaching its full potential. Citing NAR’s monthly Realtors Confidence Index, which declined in 2014 while consumer confidence rose, Yun said Realtors are generally optimistic, but certain factors such as inventory shortages in parts of the country and tight lending standards may be playing a role in the recent dip in confidence.

“Multi-family housing starts have rebounded back to normal since the downturn mostly due to the strong demand for renting,” said Yun. “On the other hand, single-family housing starts are still lagging as smaller homebuilders continue to face difficulty obtaining construction loans, and some have even gone bankrupt. Single-family construction still needs to increase to alleviate supply shortages and keep up with the pent-up demand.”

Yun said renter households have increased by 4 million since 2010 while homeowner households have decreased by 1 million. “The typical homeowner today has a household net worth of around $200,000. Meanwhile, renters aren’t benefitting from the rise in prices and are facing annual increases of their own in the form of higher rents.”

NAR President Chris Polychron said realtors are optimistic the Federal Housing Administration’s plan to reduce annual mortgage insurance premiums will have a positive impact on first-time buyers. “Realtors support responsible leanding to qualified borrowers and the move to lower premiums will enable more buyers to enter the market while continuing to protect taxpayers from the risky lending practices that led to the housing crash,” he said.