A shortage of homes available for sale could trigger either a sharp rise in U.S. home prices or a surge in new construction next year, predicted one of the country’s leading housing economists in Denver on Friday.
U.S. home prices could rise 10 percent next year or housing starts could surge 70 percent to 1.2 million, predicted Lawrence Yun, chief economist of the .
“It is either starts or prices, not both,” Yun told attendees in Denver for the annual conference of the
Yun said his updated forecast differs from the NAR’s official forecast of 3 percent to 5 percent home price appreciation this year and next.
The sharp decline in inventories of homes for sale in recent months is behind the more optimistic outlook, Yun said.
One reason why supply hasn’t kept pace with demand is that a significant share of homeowners can’t sell without bringing money to the closing table.
About 31.4 percent of U.S. homes with mortgages on them remain underwater, or worth less than what is owed on them, said Stan Humphries, chief economist at Zillow, the online real estate data provider.
Humphries said his analysis had focused on how negative equity would dampen demand by creating more uncertainty among buyers, leading him to support a “long, flat bottom.”
What he didn’t appreciate until more recently was how negative equity could crimp supply and create upward pressure on prices.
“The housing market in many respects has become like a thinly traded stock,” said Humphries.
Buyers are scrambling for whatever inventory is available, especially on the lower end of the market.
“Demand has picked up and it can’t be met by supply,” he said. That has led to sharp increases in places like Phoenix, where inventories are down 65 percent year-over-year.
Humphries is now calling for a stair-step recovery with spikes in activity followed by plateaus. As prices rise, more sellers can enter the market, and buyers become less hesitant to purchase.
David Crowe, chief economist with the , disputed whether homebuilders could handle a surge in starts like Yun suggested.
“We have lost a tremendous amount of capacity,” Crowe said.
Construction workers have shifted to new careers, building material plants have been moth-balled and bank lending for small-scale builders, who are an important part of the market, remains hard to find.
Builders have also consumed the supply of lots they can build on, Humphries added. Bankers, burned badly by land loans, don’t appear in the mood to start again.
Single-family construction is at only 38 percent of the levels seen during the 2000 to 2002 period, which is considered more normal than the boom years that followed, Crowe said.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com or twitter.com/aldosvaldi
