Lack of supply could drive prices beyond sustainability
PRNEWSWIRE-An increase in housing supply is crucial to the health and sustainability of the real estate market and the economy, according to housing economists who spoke at a recent conference in Washington, D.C.
The session, “Outlook for Home Prices and Residential Construction,” focused on rapidly rising home prices, tight home inventories, and whether the country is in the middle of a bubble.
All three of the economists agree that more new home construction is necessary to meet rising demand from increasing household formation and curtail the affordability crisis.
“Young adults of today are forming households at a much lower rate than previous generations, and high housing costs contribute to that,” says Len Kiefer, deputy chief economist for Federal Home Mortgage Corp., which is better known as Freddie Mac.
Many U.S. markets have an elevated home price-to-income ratio, and many major markets, including Portland, are close to surpassing their 2008 ratio.
“Are we in a bubble? No, not currently,” he says.
Kiefer outlined ways the current market is different from the one leading to the Great Recession. For example, he asserts there are no signs of overleveraging, and household income-to-debt ratios remain low.
The aggregate risk of mortgages in the U.S. also is comparatively low, he claims.
“Those risky loans that contribute to the last bubble have largely gone away in the current market,” Kiefer says.
The panelists point out, however, that just because we’re not currently in a bubble doesn’t mean we won’t enter one.
Lawrence Yun, chief economist for the National Association of Realtors, says if supply and demand continues to become more out of balance, it could trigger fast growth in home prices.
“A best-case scenario is largely dependent on new home construction,” Yun says. “An increase in inventory will provide some much-needed release.”
Ken Simonson, chief economist for Associated General Contractors of America, says low employment in construction is contributing to the lag in home construction, despite high demand.
“Construction saw a 30 percent drop in employment in the previous decade, the largest drop of any industry. They also began laying people off a year before the recession began and did not start hiring again until much later than other industries,” he says.
This article provided by NewsEdge.