|“We are getting closer to a more normalized economy, and now we are expecting to see housing driven by fundamentals, and in fact, we’ve already seen this in some markets.” [Frank Nothaft, chief economist, Freddie Mac]
“Normalizing” is a rather mysterious word when we’re talking about a real estate market that has been anything but normal. We have seen home values pick up in the early stages of an apparent recovery because investors became so enthusiastic about single-family residences that they boosted prices by competing with one another to purchase viable investments. This is not the way we “normally” come out of a slowdown.
Nonetheless, it has helped boost real estate to resume higher pre-recession levels and has helped pull an astonishing number of homes out of likely foreclosures.
The question remains, though: Where is the market headednow? This is proving very difficult to judge and one of the reasons it is so difficult is that the real estate market, though it has clearly improved, is not acting in a recognizable way, for the most part. We just can’t find the normal signs that might help us decide where the market is truly headed.
In a sensible (normal?) period of economic growth, we would expect to see real estate sales volume growing in a nearly orderly way. Clearly, with rates still historically low and prices still relatively attractive, it seems a good time to buy a home–either as a personal residence or as an investment. In short, many of the factors that often accompany a resumption of real estate sales activity are in place. But buyers remain reluctant.
Particularly difficult to understand is new home construction, which our nation is lagging way behind in, but which is failing to pick up a great deal of steam. (Inevitably, with demand growing as it is, the number of builders constructing new homes has grown; employment in the sector has jumped. But we still don’t see the sales figures for New Homes rising at truly faster rates.)
Perhaps we can gain some insight into the reluctance to buy, sell or build in this market that seems to be normalizing by looking at the youngest potential buyers–the Millenials. Polling of the young potential buyers suggests this is an apparent lack of trust in the ability of the economy at this point to sustain meaningful growth rates.
We need economic growth–especially job growth–that inspires confidence in the future. Frank Nothaft, quoted above believes this kind of confidence is on the way. He may indeed be right, but proof is not yet in.
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