Nov. 12, 2013 – The dollar volume of home sales will rise modestly next year, but that growth will stem entirely from increased home prices, NAR Chief Economist Lawrence Yun told a forum Friday at the Realtors Conference & Expo.
Tight underwriting by lenders, low inventories in many markets and rising interest rates hold back growth in sales volume, said Yun. He predicted home sales of about 5.12 million for 2014 – virtually the same level forecast for this year.
But home prices will rise 6 percent.
More broadly, Yun says economic growth will likely remain sluggish. He doesn’t see any signs of a return to recession, but neither does he see anything that would boost growth beyond the 1 to 2 percent that’s been the case during the recovery. Economists consider a minimum healthy growth rate to be 3 percent.
According to Yun, the U.S. needs to spur stronger growth in the housing market by increasing inventory through stepped-up new construction – and only more new homes will ease tight inventories and help slow home price gains. Last year, only about 900,000 homes were started, a 50-year low and half the amount that’s needed, Yun said.
Also needed: More certainty from the federal government. Lenders keep tight underwriting standards, in part, due to concern over the pending qualified mortgage (QM) and qualified residential mortgage (QRM) rules due to take effect next year.
Although NAR supports most parts of the rules as drafted, community lenders are concerned over the rules’ implementation burdens, which they believe will put them at a competitive disadvantage with large banks.
Meanwhile, lenders remain tied up in litigation and contentious negotiations with Fannie Mae, Freddie Mac and the FHA over loans that went bad during the market collapse. Those conflicts keep them from lending more and from making more loans available to applicants with less-than-pristine credit profiles.
Yun thinks mortgage lending could increase significantly once there’s more clarity over the QM and QRM rules. He’s hoping lenders will look to purchase loans as their next profit center, since their refinance business – which has been fueling profits over the last few years – is drying up in tandem with the rise in interest rates. The average interest rate is now about 4.5 percent, still low by historical standards, but as they continue their upward movement the universe of homeowners who can refinance shrinks.
Yun predicts refinancings will drop next year to their lowest level in 15 years. But lenders won’t start to purchase mortgages in a big way as long as the regulatory environment remains as uncertain and contentious as it is now.