Tuesday, May 28, 2019

Chief Economist of National Association of Realtors Speech at the Norwalk Inn

Last week, Laurence Yun, the chief economist of N.A.R. spoke for about 90 minutes about the state of the real estate market in Connecticut as well as nationally. 

While once the wealthiest state in the nation, many of the wealthier residents have started to leave Connecticut.  This has been enhanced, in part, by the new tax laws which disadvantage states that have real estate taxes greater than $10,000/year, the limit by the new tax laws, as well as more expensive homes for which the $750,000 mortgage limit means that mortgage amounts above that will no longer be tax deductible. 

2018 GDP was +2.9%, a healthy number, but not sufficient to cover the additional costs of the tax cuts, which means that the Federal debt will be increasing significantly.  There have been some
economists that feel that a recession might be on the horizon.  Mr. Yun is more optimistic, feeling that very low interest rates might be able to sustain a continued prosperity for longer than what we have currently experienced (though he did note that there were some signals in the yield curve that might suggest that possibility) .  The fundamentals, he pointed out are still strong and consumer sentiment is also very strong (availability of jobs a factor).  The number of short sales and foreclosures are also down significantly to more historic levels.

On a national level, real estate affordability ( a measure of what people can afford based on income and debt) is actually higher than in the year 2000 (when mortgage rates were at 8%).

Job growth in Connecticut has been mixed.  In our area (Bridgeport to Stamford) it has fallen about 3% from the year 2000.  However, during the same time period New Haven saw job growth of 4%.
Further east the Norwich/New London area saw no growth. 

Weekly earning are rising, and there appears to be the capacity to expand.  At issue, in some locals, is that there are not enough qualified people to fill jobs. 

The Fed appears ready to be 'patient' and will likely not be raising interest rates until at least 2020.

Demand for starter homes remains strong throughout the country (including Connecticut), though in some places there is a lack of inventory.

The confluence of low rates and high consumer confidence are good indicators of a strong real estate market.  California and Connecticut are two areas where this has not been manifested, though the number of information requests for mortgage pre-approvals has been on the rise.

Existing home sales were slightly off nationwide, but new home sales are on the rise.  Resales of slightly older 'McMansions' were struggling, and the high end in Connecticut is 'soft'.  What had been a 10% differential between new and existing home sale prices has now widened to about 20-25%.  The growth of inventory has been slow nationwide, and housing starts for new housing is running behind demand. 

New home starts are down in Connecticut but Multi family starts are up.

In the past a typical period of time that people stayed in their homes was 7 years.  Today it is 10-11 years.  Consumers appear less excited about inventory choices.  More people not moving is an indication that people don't feel that their lives are improving (which is when they typically buy).

Unaffordable rents in the New York City market place are an indicator that there may be a shift of those people towards purchasing outside of the 5 boroughs. 

Student debt has also been a drag on millenials purchasing homes. 

In my next blog, I will speak about future solutions to improve Connecticuts real estate market  mentioned by Dr. Yun.

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