Housing predictions as fickle as the weather
As we relearn every morning from TV weather forecasts, predictions are worth very little. Especially more than 12 hours in advance.
As we relearn every morning from TV weather forecasts, predictions are worth very little.
Especially more than 12 hours in advance.
So it is with real estate, especially when the source is the housing industry itself.
Yet from my experience writing about residential real estate for 27 years for this newspaper, it seems to me that what the National Association of Realtors' chief economist, Lawrence Yun, has predicted about 2016 may not be far from wrong.
In mid-January, Yun forecast a modest increase in sales of previously owned homes in 2016 - 1 percent to 2 percent, not percentage points - as well as higher median prices of 5 percent to 6 percent and fixed 30-year mortgage rates topping out at 4.3 percent by year's end.
This, by the way, is not the full recovery that economists in 2010 had been predicting by 2015.
Indeed, while preliminary national numbers show that 5.26 million homes - the biggest number since 2006 - changed hands in 2015, the number was 25 percent below the 2005 peak of 7.08 million.
Just to be clear, there were 6.47 million sales in 2006, 5.03 million in 2007, and 5.09 million in 2013.
Since 1989, the number of home sales has averaged about 4.72 million annually, according to Realtors' data from the Federal Reserve Bank of St. Louis website. These are sales of single-family homes, condos, townhouses, and co-ops.
Maybe 5 million or so a year is the new norm. It is really not wise to make such predictions, however.
The economy is a major drag on home sales.
We may be ecstatic that gas prices lately have averaged about $1.80 a gallon, but the fact that oil prices fell 65 percent to a 12-year low in 2015 indicates that supply is outstripping demand for a number of reasons: lack of expansion in world economies, concerns over China's growth, and a glut of Saudi Arabian oil in world markets among them.
That's true of China, whose economic slowdown took a huge chunk out of the Dow Jones industrial average in the first weeks of 2016.
Raw-materials suppliers worldwide increased production assuming that China would consume anything they produced.
Now, those same suppliers are posting huge losses because China is no longer lining up at the all-you-can-eat buffet.
Since the Philadelphia region's economy is heavily dependent on education and health care, which proved somewhat recession-proof, we may see improvements in home sales and prices in 2016.
I recently reported on multifamily rental prospects for 2016 based on what real estate investment services firm Marcus & Millichap was suggesting about the overall economy of the region.
The local unemployment rate has reached its lowest level since the recession, the firm's report said. The Philadelphia workforce grew 1.2 percent in 2015, or by 35,000 new positions, it added.
Last year, this region added 45,400 jobs to the market, led by gains in the education and health-services sector.
Although not as quickly as they should, home prices are recovering, and sellers are slowly returning homes they bought at the peak of the real estate boom to the resale market.
Recovering prices, combined with wages that are not increasing, are making home purchases unaffordable for a growing number of young first-time buyers, even though the threatened increase in fixed interest rates has not yet materialized.
As the stock market stumbles, investors are again buying Treasuries - the "flight to quality." Yields are dropping, and with them mortgage rates.
Too many variables for accurate predictions, just like the weather.
The solution: Don't pack away the shorts and T-shirts yet.
215-854-2472@alheavens