LAWRENCE YUN
‘No housing bubble’

A national economist offered a rosy outlook for the housing market, telling Bay State Realtors last week that the state’s housing market will fare even better than the rest of the country.

Lawrence Yun, senior forecast economist for the National Association of Realtors, said price declines are unlikely and home prices and home sales are more likely to rise in Massachusetts because the state has a greater potential for job growth.

Yun was one of several speakers at the professional development conference organized by the Massachusetts Association of Realtors last Thursday at the Sheraton Hotel in Framingham. The conference featured several well-known national speakers who provided tips on everything from selling to Generation X to negotiating to adopting and surviving amid industry changes.

Yun, who spoke at the general opening session, said home sales and price appreciation will be stronger in Massachusetts than nationally because in addition to its potential for job growth, the state has still not experienced the economic recovery that other parts of the country have seen. And the Massachusetts housing market, while posting strong price increases and healthy home sales in the last few years, has not seen the type of growth that other states have because of heavy job losses here, he said.

The Bay State housing market has surpassed the expectations of many industry watchers this year. Realtors saw an active spring quarter, according to MAR, as economic expansion, rising consumer confidence and a jump in mortgage interest rates earlier this year pushed more homebuyers into the market. MAR reported that sales of single-family homes in the second quarter were up 19.5 percent from a year ago, while condominium sales rose 36 percent. The median selling price for single-family homes and condos in Massachusetts climbed 12.5 percent and 13 percent, respectively, during that period.

Nationwide, economists for NAR are predicting another record year for home sales this year – the fourth consecutive record-breaking year. Existing-home sales across the nation are projected to be about 6.5 million in 2004, up from the previous record of 6.1 million last year. NAR forecasts that the national median existing-home price will rise 7 percent this year to $181,800.

Yun predicted that in Massachusetts, which has experienced double-digit price appreciation in recent years, price increases may moderate to between 5 percent and 7 percent in 2005 – but they won’t drop.

‘A Rare Event’

Several factors have kept the housing market strong, including low inflation that results in low mortgage interest rates, a strong banking sector, rising consumer confidence and demographics that have kept homebuyer demand healthy, explained Yun. Rising corporate profits industry-wide, along with job growth, will continue to provide good news for housing, he said.

Yun also disputed the housing bubble theory, at one point calling it “baloney.”

“It is our view that there really is no housing bubble,” he said.

If consumers had listened and believed the housing bubble talk, “they would have missed out” on the robust housing appreciation, he added. In fact, Yun noted that the median household net worth for the typical homeowner grew from $122,000 in 1992 to $171,000 in 2001, while the median household net worth for the typical renter only increased from $4,000 to $4,800 during the same period.

Researchers and the media have focused on the housing bubble in the last three years because incomes have not kept up with the skyrocketing home prices. But Yun said despite the higher home prices, low mortgage interest rates have made monthly mortgage payments manageable for consumers.

“They [homebuyers] have the financial capacity to service the debt,” he said.

In Massachusetts, where average home prices in some communities exceed $500,000, there has been great concern about price declines. Still, Yun said if price drops were going to happen, they would have occurred during the last recession because of the state’s heavy job losses. They didn’t.

“When one sees a price decline, it is a rare event,” said Yun, who noted that the price declines that do occur are usually modest.

When the housing market crashed in the late 1980s and early 1990s, there was a 16-month supply – an oversupply – of for-sale homes in Massachusetts, largely due to a boom in new-home construction. The difference today is that the number of available homes for sale is much lower, mortgage interest rates are more favorable and there is opportunity for job growth, he said.

Housing supply continues to be an issue nationwide and in the Bay State, according to Yun. Currently, there is a four-and-a-half months’ supply of homes for sale nationwide, which means that the market favors home sellers. In Massachusetts, Realtors have been reporting that homebuyers have a greater number of for-sale homes from which to choose. But the inventory of available homes in Massachusetts would cover about six-and-a-half months, which according to Yun is still considered relatively low.

The limited supply of homes will be of concern because of strong buyer demand that has and will continue to fuel the market, particularly from aging baby boomers – those born between 1946 and 1964 – who are searching for second homes, and their children, the so-called echo boomers who will be searching for their first homes. Yun said many of those retiring baby boomer parents will provide money to their children for down payment – providing a future client base for Realtors. He also pointed to the large number of immigrants that will soon be ready to purchase homes.

Besides Yun, the conference featured motivational speakers and educators like Terry Watson, Jerry Rossi and Bernice Ross.

In a session called “Shift Happens: Adopting, Surviving and Excelling Amid Industry Changes,” Rossi shared inspirational and success stories and discussed the more emotional aspects of working in real estate.

He urged Realtors to remember five “axioms of change” in their professional and personal lives: that people don’t change habits, they replace them with something else; to quit trying for perfection, but instead strive for excellence; that happiness and abundance are a choice; that it’s not time management, but choice management; and to ‘stand up for what you believe,’ breathe deeply and drink plenty of water.