Job Growth to Boost Realty Sector
The improvement in employment is expected to boost the domestic real estate segment in the U.S. realtors said and added that job growth, which is the key to overall economic health, has essentially recovered all of the eight million jobs lost since the great recession.
Employment is expected to improve, with job growth rising 1.6 percent in 2014 and 1.9 percent next year, after growing 1.7 percent in 2013; consumer confidence should gradually rise.
The Gross Domestic Product should grow 2.2 percent this year and about 2.9 percent in 2015; GDP grew 1.9 percent in 2013. Inflation, as measured by the Consumer Price Index, was a tame 1.4 percent in 2013 but is projected to rise to 2.5 percent this year and 3.5 percent in 2015.
Eric Belsky, managing director of the Joint Center for Housing Studies at Harvard University, agreed we’re unlikely to see a back-up in GDP. “Growth in the stock market and the recovery in housing along with pent-up demand are major factors driving the economy,” he said.
“There are three federal surveys that measure household growth and that are inconsistent, but we had real growth in 2012 that fell back last year,” Belsky said. “Even the survey with the strongest household growth shows we’re a million below where we should be, but we’re probably two million below. We could see a notable uptick in household formation later this year.”
Belsky noted there are nearly three million more young adults who lived with their parents in 2012 than in 2007, and the median incomes for all young adults have declined since the great recession.
According to the Federal Reserve Bank of New York, student loan default rates have soared from just over 6 percent in 2003 to nearly 12 percent last year. Student debt is hurting credit scores and hindering the ability of some young adults to qualify for a mortgage; it could be a problem for as many as one in 10 renters who are in their 20s.
The Joint Center for Housing Studies projects household growth to rival or top the annual average pace from 1995 to 2000, and projects 76 percent of the growth over the next decade will be from minority households. The greatest increase is expected to be among households age 65 and older.
According to Fannie Mae, roughly nine out of 10 people under the age of 45 expect to buy a home in the future, but Belsky said mortgage underwriting standards are dramatically tighter, which disproportionately impacts minorities and those with lower incomes.
Dennis McGill, director of research for Zelman & Associates in New York, also focused on trends in housing demand. “Our analysis of Census Data shows an average of only 720,000 housing starts annually from 2010 through 2013, but our projections over the next five years exceed an average of 1.9 million,” he said.
“We won’t ramp up to that level right away, but if you average housing starts for the entire period from 2010 to 2019, it would be about 1.44 million,” McGill said. “There is a strong tailwind to housing starts. We’re starting to see capital come back to single family construction, which is very favorable.”
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