While the GOP tax plan will not increase GDP, the real estate market does hold the key to economic growth, according two prominent economists at the REALTORS® Conference & Expo on Friday. While the country’s GDP hit the three percent growth mark promised by President Trump during his 2016 campaign over the past two quarters, that could change if lawmakers don’t treat the industry with more care, National Association of REALTORS® Chief Economist Lawrence Yun said at the Residential Economic Issues & Trends Forum. “I hope people understand that real estate drives the economy,” Yun told forum attendees. “That could come to a halt very soon if real estate is damaged.”
Lawrence Yun addresses attendees at the Residential Economic Issues & Trends Forum Friday
Ken Rosen, founder of real estate research firm Rosen Consulting Group, added that Congress can’t rely on other sectors to produce the same level of economic growth as real estate. “It’s not going to happen from manufacturing, as much as the president would like to say. It’s not going to come from coal,” he told forum attendees. “You’d think a president who comes from real estate would know that, but that’s not what his advisors are telling him.”
Rosen said the best way to support such growth would be to loosen credit standards and build more homes. Yun noted that raising inventory rates could also help keep home prices from rising too quickly. The GOP tax plan could have the same impact of depressing home price increases by reducing the impact the mortgage interest deduction has on homeowners, Yun said. But the better method to reducing price growth would be to jumpstart new-home construction: “We don’t want to tame the price increases by disincentivizing buying a home; we want to tame price increases by building more,” he said.
However, in order to maintain and expand on the current level of economic stimulus provided by the real estate sector, housing experts warn, the industry must increase affordability and access to homeownership. Yun predicted more interest rate hikes in the coming years, which will dampen affordability. Rosen said he encourages young people, including his own son, to buy now before rates increase. Rising home prices aren’t the real threat, he added. “The risk is interest rates. Now is the time to both purchase and lock in.”
Of course, not everyone can buy in the current market. Rosen addressed other ways to open up housing to more Americans, including loosening lending restrictions and introducing more alternative loan products, such as rent-to-own options, the ability to roll student loan debt into mortgages, and allowing institutional investors to buy in on individual home purchases through shared equity products. He also suggested creating an IRA for housing funds, where buyers could put money aside before taxes to help them save for a down payment.
Finally, even those who can buy might be suffering from what Rosen calls “post-foreclosure stress syndrome.” Rosen estimated a significant portion of those who have the money to buy a home aren’t doing so “because they’re afraid.” He suggested an education program to help Americans see the benefits of buying. “If you calculate homeownership with a 15 percent to 20 percent loan, there’s no better place to be.”
Meg White is the managing editor for REALTOR® Magazine and administrator of the magazine's Weekly Book Scan blog. Contact her at mwhite[at]realtors.org.