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Economists Predict Rising Housing Sales -- Prices

rising housing pricesRising Housing Sales

Southwest Florida is among a growing number of metropolitan areas where the cost of housing -- both to rent or buy -- is approaching record highs.

A strong turnaround in home sales and a suppressed stock of real estate listings has lifted prices to their highest level since the boom of the mid-2000s, while rents are following a similar path. Most top housing economists expect that climb to continue through 2017.

The burgeoning recovery has created a divide in the housing market, with baby boomers and investors dominating buyer activity. Unable to save for a down payment or qualify for a loan, too many families and first-time buyers are left trapped in escalating rental situations, according to a panel of economists convened at the National Association of Real Estate Editors conference in Miami.

Prices outpacing sales

Their consensus forecast called for existing home sales to increase by 5 percent this year, with prices rising 7 percent. But to avoid another crash, analysts said long-term demand must return.

"Prices could touch a new high this year," said Lawrence Yun, chief economist for the National Association of Realtors. "We need more inventory because prices are rising too fast ... Nationwide, we are not in a bubble, although some markets are."

  • On the heels of a record year for home sales, buyers closed on 2,569 existing single-family homes and condominiums in Sarasota, Manatee and Charlotte counties last month, a modest improvement over May 2014.
  • Homes in the Sarasota-Manatee region sold for a median of $240,000 in May, a 14.3 percent increase from a year ago. But supply remains tight.
  • Since the recession, about 3 million U.S. homes have been converted into single-family rentals, a one-third increase.

More than 5 million Americans also are still upside down on their homes, and many of the owners with positive equity refinanced under favorable mortgage rates, which has kept people in their homes longer and properties off of the market.

While demand is sizzling, builders have not supplemented those supply shortages as they have in other up cycles.

Builder sentiment is strong, and new homes starts are increasing at moderate rates, but overall home builder production in the U.S. remains below its historical average.

Economists say shortages -- of lots, labor and material -- which also have all become more expensive. Smaller builders also are having a hard time financing speculative new-home communities.

Home building to accelerate

Forecasters predict home building will pick up even more into next year.

"The signs are all in a positive direction right now for the first time in a long time," said David Crowe, chief economist for the National Association of Home Builders. "I expect a better year next year."

Economists credit the recovery to bolstered consumer confidence, with baby boomers fueling retirement- and vacation-home purchases in Florida.

"When consumers feel their economic well-being is better -- when they're confident they'll continue to have a job in two or three years -- they're more likely to purchase a big-ticket item," said Frank Nothaft, an economist with CoreLogic. "And homes are the biggest-ticket item."

Rent less affordable

The two demographics that remain absent from the housing market are younger families and millennials. They are still turning to rentals.

Bad credit, a secular change in the thinking of young professionals -- many of whom remain saddled with student-loan debt -- and anemic household formations have driven robust demand for rentals, which has overwhelmed the supply.

  • Rents are now growing faster than home prices in many markets, increasing by 5.7 percent over the year in Sarasota-Bradenton. The average market rent in Sarasota is $1,821 per month, nearly $500 more than the national average, according data from Zillow.
  • Sarasota renters now dedicate more than 46 percent of their income to a lease, well above the benchmark considered financially stable and ranking Southwest Florida among San Francisco and New York City as the most unaffordable cities for renting, Zillow said.

"We're in the midst of a historical crisis in terms of producing affordable housing in America," Zillow economist Stan Humphries said. "The reality is today's renters are tomorrow's buyers, and that will come to roost with long-term demand."

Herald Tribune 6/26/2015