(L-R) Moderators and presenters: Fred Westerlund, MBH Settlement Group; Stephen Melman, National Association of Home Builders; Barry Biggar, Visit Fairfax; Lorraine Arora, 2018 NVAR President; Donna Hurwitt, Fairfax County Economic Development Authority; Jessica Lautz, National Association of Realtors®; Dr. Mark Palim, Fannie Mae; and Richard Donohoe, Fidelity Bank Mortgage.

 

REALTORS® MAY HAVE EXPERIENCED A SLOW SPRING, but as the end of 2018 approaches, many optimistic trends pave the way for a promising year ahead.

The local and national economy remain strong, and the unemployment rate is at a low of 4 percent. Millennials make up the largest share of homebuyers and are using real estate agents more than any other generation. However, there are concerns regarding inventory, affordability and the labor market.

Expert presenters explained these trends and others to more than 200 practitioners at NVAR’s 22nd annual Economic Summit on Sept. 13 – titled “Mortgages, Millennials, McMansions and More.”

LOCAL DEVELOPMENT AND HOUSING TRENDS

Donna Hurwitt, director of market intelligence for the Fairfax County Economic Development Authority, opened the summit with a discussion of county development milestones.

Fairfax County is the second largest suburban office market in the U.S. and home to 10 Fortune 500 companies. Hurwitt shared announcements of several companies that have decided to relocate or expand in the county, such as Appian, Arconic and Bechtel. In 2020, the Transportation Security Administration will relocate and move 3,000 jobs from Arlington to Springfield. However, the location of Amazon’s second headquarters is still unknown, Hurwitt said.

“We economic developers love the sight of cranes, and you can see many of them across the county – particularly along the Silver Line corridor,” Hurwitt said.

The Silver Line corridor is home to 20 percent of Fairfax County residents, 40 percent of jobs in Fairfax County and 50 percent of the commercial real estate inventory, according to Hurwitt. Since the opening of the Silver Line in 2014, 2 million square feet of office space and 5,000 residential units have been built. Currently, 1.5 million square feet of office space and 2,300 residential units are under construction, she explained.

Discussing the high quality of workers in the region, Hurwitt cited that more than 60 percent of residents in Fairfax County earned a bachelor’s degree or higher, which is double the national average.

“The only issue that we’re all facing is: because of our strong economy and low unemployment, the labor market is tight,” Hurwitt said. “Businesses, universities and local governments are coming together to make sure that we address this [jobs] issue and keep this pipeline strong.”

Hurwitt presented data from Dr. Terry Clower, director of the George Mason University Center for Regional Analysis. According to the GMU-CRA data, there are nearly 3.4 million jobs in the D.C. region and job growth remains strong. Professional and business services is the largest job sector and includes fields such as government contracting and information technology.

The D.C. area experienced job loss in the federal government sector, which decreased 4.8 percent from July 2017 to July 2018. Most of these jobs are based in D.C., not Northern Virginia, and are a result of federal agencies shrinking, Hurwitt said.

In the D.C. region, the average home sale price in July was $487,000, and prices continue to trend slowly upward. The average home price in the Northern Virginia region was substantially higher than the D.C. metro region at $609,000 this past July.

During the post-presentation Q & A, members had the opportunity to ask questions of the panelists.

“We aren’t seeing the price escalation you might expect given the tight inventory that we have, but I think what we’re hearing is that there seems to be a fair amount of buyer discipline in the market,” Hurwitt said.

In Clower’s forecast, formulated with NVAR leaders and reported by Hurwitt, he predicted sales prices will continue to follow an upward trend, and unit sales will stay stable. However, inventory will remain a concern.

“Quite simply, demand is outstripping supply, and there’s just not enough new construction,” Hurwitt said.

Barry Biggar, president and CEO of Visit Fairfax, explained how Fairfax County’s strong tourism activity impacts the local economy and residential real estate. Northern Virginia contributes to over 40 percent of the total visitor economy to Virginia, Biggar pointed out. He discussed the importance of tourism as a way for visitors to become familiar with the area and become prospective homebuyers.

“By delivering our message and investing in the future, we’re hoping to bring more people here every year. And that, I hope, will maximize and strengthen your business,” Biggar commented.

HOMEBUYER DEMOGRAPHICS

Jessica Lautz, director of demographics and behavioral insights at the National Association of Realtors®, spoke about demographic trends affecting homeownership.

Lautz said a few trends impacting homeownership are the peak of millennial homebuyers in the market, the growing number of minorities, declining marriage rates and the increase of average life expectancy.

Millennials are the largest generation today and the largest generation of homebuyers for the fifth consecutive year, Lautz said.

Compared to the 1960s and 1970s when more than 70 percent of Americans were married, only half are married today. This change impacts affordability and consumers’ ability to become homeowners. Although the drop in marriage is related to the decline in homeownership in young adults, there is also a rising number of unmarried couples in the market, Lautz said.

Today, 50 percent of babies have the chance of living to be 100 years old. Longer life spans could pose additional problems for inventory and drive the need for creative housing solutions in the future, Lautz said.

As the number of first-time homebuyers declines, Lautz said a common myth is that first-time homebuyer age will increase, but the median age has actually stayed the same at 32 years old. However, the median age of the repeat buyer is increasing. Whereas the median age of the repeat buyer used to be in their 30s, today the median age of the repeat buyer is now 54.

Lautz said tenure in a home has drastically increased, and home owners are staying in their houses longer for many reasons: elderly parents that move in, adult children that haven’t moved out and longer life spans.

One in five first-time homebuyers skip renting altogether and move directly from their parents’ house into homeownership.

“This is not going to make your job any easier, because they likely have not paid a utility bill; they don’t know what an HOA (Home Owners Association) is; they don’t know anything about the homebuying process, so it makes it pretty complicated,” Lautz said.

According to Lautz, first homebuyers often have a misconception about the cash deposit they must have for the down payment. Eighty percent of non-owners think they need 10 percent or more, but they actually need just 5 percent.

“But that’s not to say that saving for this down payment is not difficult,” Lautz said. “Student debt continues to be a massive barrier.”

Lautz said buyers’ use of agents is at an all-time high of 87 percent. Although she often hears agents’ concerns of technology being a disruptor, Lautz said technology is really a tool that supports agents.

“We’re fearful of it [technology], but at the end of the day, millennials are using agents at higher rates than any other generation,” she said.

NATIONAL OUTLOOK: SUPPLY CONSTRAINTS, INTEREST RATES AND AFFORDABILITY

Dr. Mark Palim, vice president and deputy chief economist at Fannie Mae, discussed national economic trends and policy that could impact the remainder of the year and beyond.

The U.S. had a strong second quarter with 4 percent growth in gross domestic product, which Palim said will likely be the “strongest coordinate this economic cycle.” Although there has been substantial growth in the last few years, Palim said growth has been lower than historical averages, and there have not been sustained productivity gains.

“You need productivity gains to be able to fund income growth, and, ultimately, for all those in the housing market, consumer income growth is what you need to have a healthy housing market – whether people own or rent,” he said.

Business and consumer confidence increased after the election but has since gone a bit sideways, Palim said.

“In terms of home sales, as you know well, we’ve had a bit of a disappointing spring and some softness as consumers adjust to higher rates, adjust to the strong appreciation of home prices and the low level of inventory across the country,” Palim said.

He said unemployment remains low and both small and large companies’ biggest concern is finding qualified labor in the location they need.

“The bottom line is this is why the Fed is concerned,” he said. “You have a tight labor market, strong growth – that’s generally inflation area.”

The Fed is increasing interest rates due to inflation concerns and the acceleration of U.S. debt, Palim said. Fannie Mae predicts the annual average of the 30-year fixed-rate mortgage will increase from 4.5 percent in 2018 to 4.7 percent in 2019.

Stephen Melman, J.D., director of economic services for the National Association of Home Builders, also commented on the supply constraints of skilled labor, land, credit and lumber. He said 64 percent of builders report a shortage of quality building lots, which leads to smaller and more expensive lots. Lumber prices are up 30 percent since 2017, which translates to an increase of roughly $7,500 in the construction costs of a typical American home.

“Increase on prices, mortgage rates, lumber costs – they’ve all contributed to an erosion of affordability,” Melman said. Presenters at the Economic Summit shared many forecasts and predictions, yet there are still some uncertainties. Federal policy will continue to impact the economy and homeownership, and only time will tell what new possibilities, such as the location of Amazon’s second headquarters, could mean for the region.

Despite this uncertainty, Realtors® continue to be the trusted resource for clients through each step of the home buying and selling process.

The Economic Summit took place at the Northern Virginia Community College Annandale Campus and was sponsored by Fidelity Bank Mortgage, TIAA Bank and the Virginia Housing Development Authority (VHDA). To view the PowerPoint presentations, visit NVAR.com/ecosummit.