Monday, June 25, 2012

REAL ESTATE ECONOMISTS DESCEND ON DENVER

The National Association of Real Estate Editors wrapped up its 46th annual convention at The Brown Palace Hotel in Denver this weekend.  The convention, which featured hundreds of editors from newspapers, real estate magazines and industry websites, focuses on coming trends and technological innovation.

Lawrence Yun, head economist for the National Association of Realtors, said in a speech on Friday that demand is so strong for housing right now that many areas of the country could see 10% appreciation over the next 12 months.  He cautioned, however, that appreciation would probably be less than that if builders re-enter the market on a large scale.

New construction has essentially been grounded for the past five years.  Here in Colorado, nearly three-quarters of the builders who were building homes in 2007 have shut down, left the state or declared bankruptcy.  The process to jump start new home construction can take up to 24 months from the time financing is secured, as builders must clear zoning hurdles, build infrastructure and hire subcontractors before the first foundation is poured.

Stan Humphries, lead economist for Zillow, said that the recovery would look more like a “stair step” than a steady climb.  As demand pushes values higher, homeowners who have had little or no equity will jump into the market and list their homes, which will cause appreciation to stall.  Once those homes are sold, there will once again be a shortage, leading to more gradual appreciation. 

The one consistent theme among economists is that there is demand that is real and which figures to last for several years.  There are three main reasons for this, according to the economists:
-  Millions of adult children (ages 25-34) eager to buy a home after moving back in with their parents during the recession

-  A strong influx of first time buyers who are being encourage to take advantage of low rates and high affordability

-  The return of “first generation” foreclosure households coming back into the market after six or seven years on the sidelines
The one commonality with all three of these groups is that they figure to be far more interested in affordable entry-level housing than in luxury, high end homes. 

That suggests that appreciation gains will continue to be strongest below the median price, while the higher end of the market may take longer to recover.