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Q&A: NAR chief economist talks market 'normalization'

Although home prices in many metro areas continue to rise, the pace of such gains is normalizing to a healthy level, according to Lawrence Yun, chief economist of the National Association of Realtors (NAR).

The NAR’s latest quarterly data for first-quarter 2019 shows the median price of an existing single-family home is $254,800, up 3.9 percent from first-quarter 2018. Single-family home prices increased in 86 percent — 153 of 178 metropolitan statistical areas — of the markets tracked by NAR last quarter. But only 7 percent of metros posted double-digit increases, down from 14 percent in the prior quarter.

Total existing-home sales, including single-family homes and condominiums, grew 1.2 percent year over year to a seasonally adjusted annual rate of 5.207 million in the first quarter of this year. That’s up from 5.143 million in fourth-quarter 2018, but down from the pace of 5.507 million in first-quarter 2018.

There were 1.68 million existing homes on the market at the end of this past March, up 2.4 percent on a year-over-year basis. Average supply has grown marginally, up from 3.5 months in first-quarter 2018 to 3.8 months in first-quarter 2019.

To make sense of all these numbers, Scotsman Guide News spoke with Yun about the overall health of the housing market, the ongoing disparities between specific areas of the country and the deceleration of home-price growth.

Lawrence YunCould you give us a bird's-eye view of your home-sales numbers for the first quarter of 2019?

Home sales declined modestly, but this is the residual impact of higher mortgage rates from late last year. It takes a little time for the lower mortgage rates to filter into the system. Prices do continue to rise, but I would say [at] a much healthier rate of 3.9 percent [year over year]. That's essentially matching the people's income growth. Alignment of home-price growth with income growth is a healthy development.

But the metro-market data also shows wide disparity. Some markets are seeing faster appreciation. Others are actually seeing some decline in the price points. There’s still a wide variation in home prices to go with those price changes. The median price nationally is still far below [the median price] of our most expensive areas. In San Jose (California), [we see home prices of] over a million [dollars]. In Columbus, Ohio ... $200,000.

What do these numbers tell us about the health of the market? 

It's showing that the market is healthy. Home prices-wise, there’s an equity gain for homeowners. The typical homeowner has seen a $9,500 gain over the past 12 months. Those are nice equity gains.

[These numbers are] implying also that, in some markets, after a run-up in prices in recent years, now they have hit the top points. San Jose is actually seeing price decline. In Denver and Seattle, there’s much slower price appreciation. Still, overall, 85 percent of the [U.S.] market is seeing price gains. These are just, I would say, normal, good numbers.

Talk a little bit about the wide gulf that we're seeing in home prices between some metro markets and the shifts that those differences might precipitate. Where are we seeing people looking elsewhere because of this continued disparity? 

You know, it’s still those very high-priced cities — places like San Francisco, Los Angeles. These are desirable locations for people to at least just try out how living arrangements would work. But they are quickly realizing it's just way too expensive to live there, [even with] roommates, strangers in your house and all that. So, they quickly exit.

I think what this is indicating is that, first, one is likely to see more residents in high-cost areas wanting to move to more affordable regions of the country. The other part is, look at what happened to Amazon’s second-headquarters decision in New York City. Some of the community members felt that even if a company comes in with high-paying jobs, they don't want it because it's going to raise the housing costs further. So, you might see more local people being vocal about big companies moving to their city.

Even companies may not want to relocate or expand into pricey areas [because of this backlash]. Maybe even the company expansions will be seeking out more affordable regions of the country where employees feel like they can buy a home a while being a worker for that company.

When you say that we’re seeing some relocations, do you mean people looking further out in the suburbs of the same metro areas, or full-scale regional shifts from high-priced areas into secondary and tertiary markets? Are some areas bigger beneficiaries of these shifts, maybe because of their proximity to high-cost cities?

Obviously, for some people, trying to locate out of their current city is difficult because they’re tied to the job or maybe their spouse is tied to the job. But other people do make big changes and we see it in the data. People from California are moving to Arizona, moving to Colorado. We see the net outflow of people from high-cost [areas] into more affordable ones. Also, people are retiring and, if they can, they are moving from Connecticut and New Jersey into Florida.

But these affordable markets just simply cannot be affordable. They still need to have certain desirable amenities to attract people. Places like Dallas, Nashville (Tennessee), Charlotte (North Carolina) — those are what we say are likely to be long-term beneficiaries of many new residents coming into their area.

For a few months now, you've been calling for the construction industry to keep adding affordable-housing units. How wide of a gap do you see between the supply that we have and the supply that we need?

From the housing-market crash low point to today, I measure job creation and population growth, and how many housing units would be needed to accommodate this growth in population and jobs. Then, I compare that with the actual production. In my estimate, we are short by 5 to 6 million housing units. The builders really need to get active, especially on the affordable and mid-price points. Obviously, the low entry point, entry-level homes are where the demand currently exist.

How realistic is it to bridge that gap anytime soon?

Not any point soon, but I think what it highlights is that, each year, hopefully we produce more [affordable housing] so that gap begins to narrow and we have adequate supply, so that we have a condition where healthy, sustainable housing-market growth can occur.


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