NAR: 2016 housing starts won't keep up with demand

Dive Brief:

National Association of Realtors chief economist Lawrence Yun said during a forum at the 2015 REALTORS Conference & Expo that he expects existing home sales to increase in 2016 but at a more moderate pace due to supply constraints and rising mortgage rates. Yun predicts existing home sales of 5.45 million in 2016, up from an estimated 5.3 million in 2015.
Yun also said he expects median home prices to grow at an annual rate of 5% in 2016, down from this year’s rate of 6%. Yun predicts the Federal Reserve will raise short-term interest rates in December and again in March — a move that would result in a 30-year fixed mortgage rate rising from 3.8% to 4.5%.
Yun forecasts approximately 1.1 million housing starts this year and 1.3 million in 2016, less than the 1.5 million needed to keep up with demand. New-home sales should reach 505,000 this year and 590,000 in 2016, Yun predicted.

Dive Insight:

The NAR encouraged the construction industry to focus on housing starts, as "the real solution to preserving affordability is a substantial ramp-up in housing starts and more homeowners listing their home for sale," Yun said.

Yun also revisited the lack of first-time buyers the NAR reported last month. With this segment of buyers at its lowest in 30 years, he expanded on the topic further and provided reasons for that specific trend.

"Even among recently successful first-time buyers, 41% have student debt, and the typical amount is $25,000. Repaying this debt amidst flat wage growth and sharp rent increases only makes it more difficult to come up with the cash needed for a down payment," Yun said. "Their emergence back into the market will be a gradual one, but our data does show that young adults view homeownership as a good financial investment and part of their personal American dream."

He added that pent-up demand broke free in 2015 on the coattails of job growth and easing home values, resulting in homeowners increasingly using the equity in their homes toward down payments on their next homes. Yun expects this trend to continue into 2016.