Stagnant economic conditions for middle-class America continue to put some real estate markets on uneven ground.
NAR’s chief economist Lawrence Yun, who presented his latest economic outlook at the 2017 REALTOR® Broker Summit in San Diego, said lifetime wealth is at an all-time high in the U.S. However, this wealth is highly concentrated in the top 10 percent, while middle-income earners’ wealth has seen relatively no gain over the past 16 years.
Read more: Still Room to Grow
“As an economist, we always want to know the causes,” said Yun. There’s a clue in the gross domestic product, which has been growing at just under 3 percent for the past 11 years. “What is critical about that horizontal 3 percent line is that it’s a statistical average in the U.S., and we’ve been under that statistical average for 11 straight years,” he said. This equates to stagnant economic growth. And if the U.S. enters a trade war with Mexico in the future, it will send the U.S. back into a recession. “It remains to be seen,” Yun said.
Yet, there are some hopeful signs when it comes to real estate, Yun said. Job openings are up and fewer people are applying for unemployment. Auto sales are also up, which is generally the second most expensive purchase for Americans behind a home purchase. “The housing market is recovering, but not yet to the extent of the auto sales recovery,” Yun said. The stock market is up, but business spending is down. Fundamentally, real estate is not heading into a bubble, Yun said, and if optimism in the economy improves, we’ll continue to see growth.
Even though the U.S. is creating more jobs, manufacturing jobs have been stagnant since 2009. “Ninety percent of job loss in manufacturing is not due to trade, but due to automation and robotics,” Yun said. Construction jobs are coming around slowly, but the real boom is in professional business services, health care, and technology.
On another positive note, the sentiment for owning a home is still high. More people said they plan to buy a home in the future in the fourth quarter of 2016 than in the first quarter of 2016, according to an NAR survey. Rising rents are a motivating factor for people looking to buy a home, Yun said. Yet, younger people are taking greater hit in the homeownership rate decline. Adults under the age of 35 are seeing declining wealth, with many unable to buy a home due to burdensome student loan debt — a variable that has tripled over the past 10 years, Yun said.
But mortgage default rates have declined dramatically, and despite some imbalances in the country’s economic recovery, Yun said, “nothing is implying that we’re turning negative.” Home prices will continue to steadily rise through 2017, as will mortgage rates, but not at an alarming rate, Yun said.
—Erica Christoffer, REALTOR® Magazine