National Economist speaks to Traverse Area Association of Realtors
Last month I had the pleasure of listening to the chief economist for the National Association of Realtors, Lawrence Yun, speak in Traverse City to the members of the Traverse Area Association of Realtors. It is not often that we get a renowned economist in Traverse City and being a Realtor and Economics major in college, I was curious to learn what his thoughts were on the national real estate scene as well as our local market and how the upcoming election might have an effect on the market.
Dr. Yun presented a great wealth of data on different aspects of the economy that related to the housing and real estate market and one of the interesting facts he highlighted was the wealth disparity between home owners and renters. He showed that individual wealth is at an all-time high and discussed how the increase in home values has led to greater jump in wealth for home owners. At the same time, median income has been decreasing. He told us the Gross Domestic Product (GDP) has historically been around 3% but for the past 12 years has been averaging closer to 2%. This equates to about $7,000 less per year for the average worker than if GDP was at the historic 3% level. Sluggish GDP growth is one of the reasons people are upset with the economy and blaming Washington for wage and wealth disparity. This has led to a lot of the unrest with government and explains why people are calling for change. Student debt has tripled in the past 3 years. Home ownership has dropped from 69% to 63% from 2005 to 2016. Much of the wealth accumulation can be attributed to rising home values and equity for home owners. Ownership is much higher in older groups of people than in the younger generation and that has left the Millennials feeling left out of the wealth growth. This is one of the reasons they support Bernie Sanders and socialist policies.
Dr. Yun also discussed whether or not the rising real estate values have brought the real estate market to another bubble. He said home sales are rising, but moderately. Mortgage debt has been holding steady and values are rising so wealth is increasing. He said people are not refinancing their homes to use them as ATMs and those facts are different from the last housing bubble. Dr. Yun also said he does not believe we are in a bubble because there are not enough homes for sale or being built to meet demand. Grand Traverse housing permits are up, but nowhere near 2007 levels. He did however feel that commercial real estate in major cities may be near a bubble because cap rates have dropped so low that pricing is at an all-time high. This is especially true for trophy properties in the larger markets, but not much of an issue in smaller markets such as Traverse City because cap rates have not dropped nearly as low. He did not feel that we had a bubble outside of the trophy properties in major metropolitan areas, so northern Michigan values should hold up well.
Looking forward, Dr. Yun said GDP should grow from 1.6% in 2016 to 2.2% in 2017. He said job growth is expected to grow by 2 million in 2016 and 2.2 million jobs in 2017. He said the median price growth in homes sales would go from 4.5% in 2016 to 3.2% in 2017, so it is expected to slow down. If job growth outperforms over the next few years, the country and our local area will do well. He also said that having retirees moving to our area will help our local economy outperform the nation. He said that vacancy rates for commercial properties will continue to decline in the next 2 years and all of these factors are good signs for the future.
When questioned about the upcoming election Dr. Yun said that Donald Trump has a commercial real estate background and that Hillary Clinton has been a big supporter of National Association of Realtors and Realtors in general and he expects that either one will be a positive influence on real estate. Even though wealth disparity is increasing and people are calling for change, the real estate market should remain strong after we elect a new president in November.
A complete set of the charts and facts that Dr. Lawrence Yun presented can be seen by clicking here