Is the economy back to normal? It’s the question everyone wants to be answered as we navigate through a semi-return to normalcy amid the pandemic, and it’s the question Dr. Lawrence Yun, chief economist of the National Association of REALTORS® (NAR), posed as he opened the Residential Economic Issues & Trends Forum at NAR’s annual REALTOR® Conference & Expo
While several market indicators lagged throughout the pandemic, the housing industry was an outlier, experiencing better than average conditions that have been sustained over the course of the last two years. But how long will it continue?
“All markets are seeing strong conditions and home sales are the best they have been in 15 years,” said Yun. “The housing sector’s success will continue, but I don’t expect next year’s performance to exceed this year’s.”
At the moment, home sales are the standout. And although there should be a slowdown going into 2022, said Yun, they will likely remain above pre-pandemic levels. The outcome, however, will largely depend on the influx of inventory, and as mortgages exit the forbearance program, we should begin seeing additional homes enter the market.
“With more housing inventory to hit the market, the intense multiple offers will start to ease,” Yun said. “Home prices will continue to rise but at a slower pace.”
Affordability has been a real challenge these last two years, with low mortgage rates and high buyer demand providing some balance. But now with rates rising as we come out of the pandemic, fears concerning inflation are surfacing.
Yun predicted that mortgage rates will see an increase of 3.7% in the coming months, a rise he attributes to persistently high inflation. Home prices rose by 12% on average in 2020 and 2021, while inflation rose 3%.
“Rising apartmenr rents will continue to place upward pressures on inflation,” he said. “Nevertheless, real estate is a great hedge against inflation.”
In terms of a bubble for 2022, the signs are just not there. While home prices have outpriced people’s income overall, said Yun, with value growth matching up to 2005 levels, we don’t have an oversupply situation or risky subprime lending like we did during the last market crash.
An area to watch, which fell behind as a direct result of the pandemic, is the jobs market. According to Yun, since the lockdowns were lifted, 18 million jobs have been created, but we are still behind by 4 million jobs compared to pre-COVID levels.
The increased remote work trend could have a long-term impact on jobs and work preferences, affecting how and where people choose to live.
“We are only in the first innings of work-from-home options,” Yun said. “People have not fully digested the work-from-home-flexibility model yet in determining home size and locational choice.”
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Well, so far the economic indicators are improving, which is good news for the Boston real estate for sale market
The September Jobs Report issued by the Bureau of Labor Statistics reported that the unemployment rate dropped to 7.9%. Though that percentage is well below what experts projected earlier this year, it still means millions of people are without work. There’s no way to minimize the tremendous impact this pandemic-induced recession continues to have on many Americans.
However, the latest Home Purchase Sentiment Index from Fannie Mae shows how more and more Americans believe the worst is behind us, and their personal employment situation is good. The index revealed:
“The percentage of respondents who say they are not concerned about losing their job in the next 12 months increased from 78% to 83%, while the percentage who say they are concerned decreased from 22% to 16%. As a result, the net share of Americans who say they are not concerned about losing their job increased 11 percentage points.”
Americans Are Game-Changers Too
Americans are naturally optimistic and have always responded to challenges with both resiliency and resourcefulness. Today is no different. As an example, the Wall Street Journal (WSJ) just reported:
“Americans are starting new businesses at the fastest rate in more than a decade, according to government data, seizing on pent-up demand and new opportunities after the pandemic shut down and reshaped the economy.”
Why would someone start a business in the middle of an economic crisis? The WSJ explains:
“The jump may be one sign that the pandemic is speeding up ‘creative destruction,’ the concept…to describe how new, innovative businesses often displace older, less-efficient ones, buoying long-term prosperity.”
The WSJ also notes that these new businesses will have a positive impact on the overall employment situation, as new businesses “are a critical engine of job creation. Startups have historically accounted for around one-fifth of job creation.”
Boston Real Estate and the Bottom Line
For the millions of Americans still unemployed, we hope for a quick return to the workforce. We should, however, realize that over 90% of people are still employed, and some are venturing into new business start-ups. Perhaps the next big game-changing company is right around the corner.