The economy is at 99% of its pre-pandemic activity, and growth in Americans’ income and savings could propel housing in the second half of the year, Lawrence Yun, chief economist for the National Association of REALTORS®, said Thursday at the Residential Economic Issues and Trends Forum during the virtual 2021 REALTORS® Legislative Meetings. Yun offered his market predictions for the rest of the year during the session.
Personal income was up 10.7% year over year in the second quarter while personal savings soared an astonishing 302%, Yun said. Though COVID-19 vaccination rates are stalling, coronavirus cases are falling, creating the potential for people to go out and spend their pent-up savings, he added. Therefore, Yun predicted the economy would grow 4.5% over the rest of the year, and the gross domestic product could reach an all-time high. “Consumers have been saving their money and will unleash spending into the economy,” Yun said. “I believe the economy will reach a higher peak.”
Yun listed retail, restaurants, travel, and in-person house hunting as areas of the economy where activity is likely to increase.
Despite the surging economy, Yun noted that jobs continue to lag. As of January, the U.S. was still 8 million jobs short of pre-pandemic levels, yet job openings were at an all-time high—potentially indicating some friction in the job market, Yun said. “We still need to get some people back,” he added. “When schools aren’t open, it makes it very difficult for people to go back to work. And some people are still afraid of the coronavirus.” The higher-than-normal unemployment benefits also are contributing to the friction, Yun said.
Yun noted that consumer prices are up across the board as are prices for construction materials, such as lumber, plywood, and copper wiring. The rise in construction costs could put pressure on future home prices, he said.
Yun expressed some concern about inflation, predicting that it could rise to 2.7% for the year.
Overall, he called the housing market “amazing,” noting that inventory is at a record low and average time on market has fallen to under 20 days. Inventory is especially tight in the market for starter homes: Listings in the price range of $100,000 to $250,000 have declined 5% year over year, Yun said. He partially blamed low inventory on slow housing production. “We have been underproducing for 13 straight years,” Yun said. The most single-family construction over the last year has occurred in the Sun Belt, with Houston, Dallas, Phoenix, and Atlanta leading the way, he added.
Here are some of Yun’s other 2021 housing predictions:
- New-home sales will increase by 20%.
- Existing-home sales will increase by 10%.
- Home prices will rise 7%.
- Mortgage rates likely will increase to 3.2%.
Even with a slight rise in mortgage rates, Yun predicted that the future was bright for the residential real estate sector. “There is no danger of a decline in home prices,” he said, “so industry revenue will be up solidly.”