that time at such a rate it has now pushed price appreciation up more than 40 percent in the last five years. More recently, in the last four or five months, we saw a lot of the demand for housing finally hit the wall of “simply not enough inventory.” This has been brewing, but this year we finally saw the signs of it in the decline in existing home sales. It’s obvious consumers re- main interested in homebuying, but you can only try to buy what is available. In terms of actual confidence num- bers, the data points continue to show interest [in homeownership] and confidence. TRM Do you feel like that confi- dence is warranted? GR It’s not hard to see, on a base level, why confidence is still up. Employment numbers are up. The unemployment rate has been down below 4 percent which, by any stretch, is in historically low territory. Just as importantly, wages have finally started to pick up speed. The important thing to know is that consumer confidence is still solid, but consumers are running into a housing inventory situation. There are just not enough homes. Just as importantly, mort- gage rates have been moving upward, pricing out a lot of first-time buyers. We did a calculation on this a few months ago when rates were moving toward 4.5 percent: increase in the mortgage rate have on a monthly payment on a medi- an-priced home? The answer is it translates to about $150 extra dol- lars a month, which may not sound like a lot but, for a lot of consum- ers, it is a fairly significant amount. We asked the question: What impact does a fifty-basis-point

Broadly, it means you qualify for a loan that is roughly $35,000 less than it was 50 basis points prior. Obviously, this means fewer people will be able to afford the homes they want, especially when price appreciation has been so strong. While home prices rose more than 40 percent, incomes rose about 15 percent, adjusted for inflation. That difference is quite steep. It’s hard to say if the inventory will loosen because a lot of homeowners have been in their homes at this point for eight or nine years, which means they likely have a 3 or 3.5 percent interest rate. All of a sudden, they are fac- ing a 5 percent mortgage rate for their next purchase in addition to buying a home that has gone up in value 6 percent every year for five years. Many of them may not want to trade that low payment in. TRM How can real estate investors, both landlords and flippers, leverage this information? GR For flippers, the current market is one worth monitoring very closely. Geographic conditions matter a lot. When we look at the last few months, sales have declined most steeply on the West Coast, which experienced the highest price appreciation of all the regions. Sales there are declining while prices are still going up, but I wouldn’t be surprised if prices flatten out. For someone who is looking to purchase a property and flip it, this is a concern. If you have declining sales or a declining sales environment, it will put downward pressure on prices. For investors buying longer-term, those who are looking for tenants, for example, I would say the more im- portant question here is the long-term

reform fueled some of this as well. However, I have to put in a parenthe- sis here: The one thing that has characterized this “recovery” period over the last nine years is the act of looking over our shoulders. The Great Recession was so severe that even though the economy has grown, we have spent the last few years wondering, “Are we really growing?” and asking, “Is the worst really behind us?” I think 2017 and 2018 marked in the collective consciousness of the country the point at which we said to ourselves, “Well, actually, yes. It’s time to stop looking over our shoulders and realize the economy is doing quite well.” However, I would add, I think there are some clouds and headwinds poten- tially hitting this economy. TRM How does NAR Research on consumer and housing sentiment play into this? certainly have played a major role in this recovery. There are two broad measures of consumer confidence: the Consumer Confidence Index from the Conference Board and the University of Michigan’s Index of Consumer Senti- ment. Both of them, from 2009 to 2014, were basically showing very moderate consumer confidence that was below long-term trends. From 2015 onward, however, the indi- ces accelerated. We saw that reflected in the pace of home sales. When consumers feel better about their finances, they are also more willing to take the risk which home purchases sometimes entail: committing to a 30-year mortgage. So, we saw home sales pick up at GR Consumer optimism and consumer confidence, broadly speaking,

Expert Commentary: George Ratiu, NAR’s Director of Housing and Commercial Research CONSUMER OPTIMISM AND CONFIDENCE CONTINUE TO AFFECT HOUSING.

Featured expert: George Ratiu, NAR director of housing and commercial research G and consumer confidence trends in 2018 are likely to affect the housing market and investors in the New Year.

eorge Ratiu, director of housing and commercial research for the National Association of Realtors (NAR), manages a research team focused on macroeconomic trends, commercial real estate, and global investments. He also produces NAR’s quarterly forecast, the “Commercial Real Estate Outlook,” and is a master of evaluating historical data through the lens of forecast. “To me, it’s a little bit ironic. We’re all trying to find out what is happening right now, what is happening next, yet most of the data that anyone looks at is historical,” he noted. Think Realty Maga- zine editor-in-chief Carole Ellis sat down with Ratiu to talk about how economic

dented, really – in the wake of the financial crisis of 2008. The Fed pumped a lot of money into its balance sheet by acquir- ing mort- gage-backed securities and trying to

What can you


tell us about the current economic environment?

GEORGE RATIU I would say that by most economic factors, 2018 has been a very good year. I think we are, to use the common analogy, hiking up a mountain at present that we have been scaling for the past nine years. I would attribute a lot of the climb to monetary policy that has been quite accommodative on the part of the Federal Reserve – unprece-

George Ratiu

> Continued on :: PG 96

stabilize banks. The logical result has been sustained economic growth over the last nine years and, this year, that growth culminated in fairly solid performance in real estate. I think tax

George Ratiu is the director of housing and commercial research for the National Association of Realtors (NAR). Learn more at

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