Lawrence Yun is the Chief Economist and Senior Vice President of Research at the National Association of Realtors, and he is a honey. He was in Dallas Friday for Realtor University, which offers a master’s level degree to qualified Real Estate agents, kind of like an industry PhD program. Realtor University is committed to giving agent members life-long learning opportunities in their field. It’s the only institution of higher education focused exclusively on real estate, and it was founded in 2002. Speaking at lunch, Dr. Yun was as bright as the weekend weather forecast on his prognosis for Dallas and Texas.
Rest of the country, not so much. Rest of the world, ugh.
He also never minces words. That 3% cap on mortgage fees is price control, he says, and not in the best interest of buyers. Thank you, Dodd-Frank: one of the factors used to identify a Qualified Mortgage under the Dodd Frank Reform Act is a determination that the amount of points and fees charged does not exceed 3% of the mortgage value. NAR has expressed specific concerns about the treatment of affiliated and unaffiliated business structures under this provision. While the government has come in and placed some overreaching new regulations in place, trying to curb loan fraud, the move seems to have locked out many buyers at the lower end of the mortgage market.
We are lucky, one again, to live in Texas:
Our economy is better than the rest of the US economy, we didn’t ever really fall into the recession, we just had a dip. And we remain in the top 5 states for job growth, which is the basis of home-buying.
Prepare for multi-year housing recovery:
This is thanks to continued job creation in Texas — hello Toyota, we love you , we love Lexus! — and despite oil prices dipping, our energy sector remains strong. But Yun was quick to point out that Texas wasn’t all about oil — we have a whole lot more going on.
Buyers look at 10 to 15 homes before they pull the trigger and buy.
There is a shortage in new home construction caused by labor shortages and difficulty for builders to get loans — still tough apparently. New homes only comprise 5 to 6% of the market. Oh and despite all this downsizing talk, new home sizes are getting larger!
Good news here: mortgage rates will remain attractive and underwriting standards for loans will relax to a more accessible level. Here’s how loans are still keeping our market in a strait jacket: 12 to 15% of the population have credit scores in the 710-720’s and cannot get home loans because the current threshold is 750/760. But when standards relax slightly, that will bring a whole new demographic into the market to buy.
We hear a lot about cash buyers but they will come down to 25% of the buying population. Currently they comprise almost one-third. Most of those are institutional investors buying in bulk.
Also, Warren Buffett told everyone to go buy homes. But when buyers couldn’t get loans to buy those homes, they got creative and borrowed from parents, relatives, other sources. Mom and Pop investors are also buying homes as investments.
As for all those mega mansions, the stock market is still at an all-time high, which has greatly increased the wealth of the top 10% of Americans. (I wondered where all that money was coming from!) This is also why the second home market is back. At last week’s event for BahaMar in the Bahamas here at The Mansion, sales director Phillip Day told us that MOST of the vacation homes being purchased at this $3.6 billion development were cash purchases. And the starter prices are $1.1 million!
In 2000, 5 million homes sold in the U.S. In 2013, 5 million homes sold also BUT our population increased by 34 million. That leaves a lot of renters and folks living with their friends and families. 80 to 85% of renters want to be buyers.
Texas will continue to have a robust market because there are so many jobs, so much wealth here. Hello, Midland-Odessa.
All economies are interlocked. Russia, as we know, is in a recession. Germany has the strongest European economy and it’s at the tipping point of recession. Though there is a European recession, the US will probably not fall into a recession because our economy is strong here, and we can weather the storm. Besides, many foreign companies are coming here..
Thought: will that further accelerate our market as the rich from Europe plant investments here in the form of real estate?
They are willing to consider other options than the single family home. They like walkability in their neighborhoods, and cities in Texas will see more high rise condo living than ever as a trend as cities build out more. The key is building higher.
“Dallas and Houston are wide, spread out cities,” says Dr. Yun. “At some point, people get tired of traffic and fighting it. They want to be closer to their job center, so they move into redeveloped urban areas, looking for proximity. Building higher, more dense close-in communities will achieve this,” said Yun.
Shrinking Middle Class
For the first time ever, American polls tell us that parents are anxious over their children’s future: they do not believe they will as well as their parents economically.
Wealth is tied to real estate. Homeowners build wealth in their homes as they pay off mortgages. Thus first step to building wealth is is purchasing real estate, which has been locked out to many people because of super stringent lending. As lending standards relax and more people can obtain mortgages, this will help the middle class stay strong. Wealth is tied to home-ownership.
“People have to know math in order to build bridges,” said Dr. Yun. And science in order to become doctors, find a cure for Ebola! The U.S. is sorely lacking in the public education of it’s student. China, Korea and Finland all surpass us in educating their youth. Education, says Dr. Yun, is the basis for economic growth. Why are we falling behind?
Maybe we could learn a lesson from German: some German students do not go to the University and obtain secondary degrees. rather, they have a strong second-track program, essential technical universities.
Thought: Maybe we need to quit thinking every child needs a college education, as those educations become as expensive as a home, and encourage more trade education? Who knows, maybe we’d have more people to build homes!