Pent-Up Demand

  • The short-term outlook is weak, with the first quarter existing home sales figures to be down by about 5 to 8 percent from one year before. Severe winter weather, inventory shortage, higher mortgage rates, and tight credit availability are some of the reasons for the setback.
  • The long-term outlook, however, is bright. Simple comparisons of very basic numbers imply current under-performance but suggest the potential for a sizable increase in home sales.
  • The table below compares three time periods:
  1. The year 2000 can be characterized as being very normal and uneventful. There was no discussion of a housing market bubble by economists or in the media. One may say that the housing market was also uneventful or even boring.
  2. The year 2005 was the peak bubble year in terms of eye-popping home sales and home prices induced from essentially no underwriting standards.
  3. The current year 2014 clearly looks to be underperforming, but has huge upside potential. Consider: there are 5 million annualized existing home sales today, which is the same as in 2000. Yet we have 34 million additional people living in the country, 4 million more people with jobs, and much lower mortgage rates. When we’ll get this upside release of pent-up demand, however, is unclear at the moment.

Lawrence Yun, PhD., Chief Economist and Senior Vice President

Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.

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  1. Anne Meczywor

    Gearing up for new construction to start adding to the housing inventory is going to take some time in my market. So many contractors went out of business with the downturn, or got so burned on spec building, that just finding and hiring skilled workers is going to be an issue. We are starting to see lots and land selling again, but who’s going to do the building?

  2. The housing recover was just in San Diego but the underwriting has become so tight it’s an ordeal when the loan conditions come back. Over qualified buyers are being scrutinized down to $7 deposits. There must be a middle group. Be thorough and lend!