More Insight on 2017 Real Estate Outlook

I had the good fortune to attend a lecture presented by the National Association of Realtors Chief Economist, Lawrence Yun, Phd. I gained more valuable insight as to the US economic outlook and the impact on real estate.

I touched on a couple points last week regarding rising interest rates and purchase power. This week I’d like to touch on why our economy has been sluggish, what the outlook is and what the future may bring.

For starters, the GDP for the US has been below 3% for 11 years and middle-class wages have not increased.

Additionally, US companies are flush with cash from high profits but they aren’t spending the cash and reinvesting back into the economy.

These factors have contributed to the sluggish GDP. Based on Economist Robert Shiller, the new administration could create the ability for US businesses to increase spending, therefore increasing the GDP to 4%. However, if the US gets into a trade war, GDP growth will suffer and create the threat of an economic recession.

Dr. Yun also spoke of an interesting trend. The US dollar volume growth cycle is 5-6 years of growth, then decline, repeat.

The US has been in an expansion period for dollar volume growth. Are we due to decline? Dr. Yun thinks not.

The difference between now and the last period of decline is the lack of mortgage crisis and the 15 million jobs that have been created since the last decline.

Locally, in Salt Lake and Summit Counties, job growth has been tremendous. Far outpacing the rest of the country. Since the year 2000, Salt Lake City has seen a 33% increase in job growth, compared to 11% nationwide.  Summit County, where Park City is located, has seen 30% job growth since 2000.

What does all of this mean for the real estate market in Utah and other parts of the country? As always, markets vary. Utah is poised for a strong real estate market. Other parts of the country where manufacturing jobs have declined rapidly will see slower growth. Overall, there has been a boost in consumer confidence since the election. 69% of Americans feel it’s a great time to buy real estate.

Dr. Yun forecasts:

2 to 3 rounds of interest rate increases. Hovering around 4.4% for a 30 year fixed rate mortgage in 2017 to 4.8% in 2018. Unless there is a trade war, then rates will not increase.

2.1% increase in GDP growth.

Pent-up demand for housing, especially new construction. If Dodd-Frank is reformed, smaller banks will be able to loan again, which is where builders finance new homes, therefore an increase in much needed new home construction.

New home sales up from 570k in 2016 to 620k in 2017.

Existing home sales up from 5.4 million in 2016 to 5.5 million in 2017.

Median price growth from 5.3% in 2016 to 4% in 2017.