President Joe Biden’s administration will bring a shift in policy priorities that could have a far-reaching impact on housing. One positive is the proposed $15,000 tax credit for first-time homebuyers, said Lawrence Yun, chief economist for the National Association of Realtors.
More worrisome is a concern that the administration could eliminate a tax break long used by real estate investors, Yun said. Section 1031 exchanges allow investors to use the proceeds from the sale of one piece of real estate for the purchase of another while deferring federal income-tax payments. This could make real estate deals for both homes and commercial property less attractive. As Yun sees it, any barrier to producing more homes would be counterproductive not only for housing but for the economy as whole.
Yun spoke to Scotsman Guide about the new administration’s policy goals, how the housing market will fare this year and what could cause the home market to stall.
How do you think the homebuying season will shape up this year?
[Last year] was an extraordinary time for the housing market, especially the second-half surge. That momentum should carry into 2021. There was a backlog of buyers. Multiple offers were quite prevalent, which means that people who did not win the bid are still in the market. The condition of jobs recovery along with a low interest rate environment are very positive. Home sales should remain very strong with the home prices continuing to see gains.
We had 13 straight years of underproduction. We won’t be able to solve the inventory situation in a single year.
What, if anything, could derail the purchase market?
If, for some reason, the economy was to go back into a recession — COVID cases get out of control or maybe there’s something problematic with a vaccine — and job losses occur, it could damage consumer confidence. A second recession could be somewhat demoralizing. That could begin to hold back home sales.
Will there be enough homes available for the demand?
Based on the current trend, I think we will finally reach the point where we begin to see some growth in new listings. We are already seeing it in terms of housing permits or housing starts, especially for single-family homes.
How long will it take for the surge in home construction to satisfy demand?
We had 13 straight years of underproduction. We won’t be able to solve the inventory situation in a single year. It will take two or three years to get us into a balanced market, but the most acute shortage would have been in 2020. The 2021 market will still favor sellers, but at least we will begin to see inventory growth.
Local regulations and the lack of available land continue to constrain the effort to meet housing demand, correct?
Yes, the regulatory barriers, land-use restrictions, the lack of construction workers, or in some cases, just trying to obtain construction loans by small-time builders. The big-time builders can tap into Wall Street or have a good relationship with a bank. Small-time builders have been struggling to get back into the market.
How do you think the economy will fare this year?
Very positive. First, we have the stimulus that was passed in December and the Biden administration will probably try to add on to that. By the second half of the year, maybe half of America will be vaccinated and another quarter by autumn. We’ll get back to normal in terms of daily activity, going to the ballgame, restaurants or travel. Everything is lining up for positive economic growth in 2021.
Anything else you’d like to see from the Biden administration?
I’m glad that they consider housing as an important component of the economy, and also just that they want to bring more people into ownership through that homebuyer tax credit. But you cannot only stimulate the demand or home prices will rise even faster. We have to have policies to address supply and incentives to build more homes. ●
