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Thursday, August 15, 2013

Pent-Up Demand Is Boosting Home Sales, But Can It Last?



Some economists say that after years of slow sales, the housing sector is about to see a sustained surge because of pent-up demand.

If true, housing could serve as a kind of a big water tower — full of potential economic energy, ready to come rushing down to help re-float the economy.

But other experts say the water will only trickle out of that tower.




It's HERE AND NOW. And here is a striking figure from a Goldman Sachs study detailed in today's Wall Street Journal: More than half of all the homes sold last year, and so far this year, have been bought with cash - no mortgage. And that is something you should add to this new TV ad being run by the National Association of Realtors.


UNIDENTIFIED ANNOUNCER: If you've been thinking about selling your home, don't hesitate. There's a shortage of homes for sale, and buyers are in the market. Every market's different. Call a Realtor today, and visit

HOBSON: Well, that's new. But is the housing market really back? Chris Arnold is economics correspondent for NPR, and Marilyn Geewax is a senior business editor for NPR. They're with us now. Welcome to both of you.


CHRIS ARNOLD, BYLINE: Hey, nice to be here.

HOBSON: So Chris, let me start with you. That is just incredible to be hearing about a shortage of homes on the market, given what we've been through. Is the housing market really that great?

ARNOLD: Well, the housing market is definitely coming back. And what's going on, the ad is right. There is a shortage of homes, particularly in places where people want to buy a house. If it's a bad neighborhood with, you know, a plague of foreclosures, then there's hazards there. But, you know, in good school districts, areas like that, there's a shortage of supply. And one thing the realty groups are thinking is the problem is the people just don't realize, hey, you know, the market is back. There's people out there who would like to buy your house; maybe you should put it back on the market.

HOBSON: Maybe even for a higher price than you were able to sell it for a year or two years ago.

ARNOLD: Yeah. Prices are up 12 percent from a year ago.

HOBSON: Yeah. Well, what's driving this?

ARNOLD: A big thing that's driving it is what we call pent-up demand, and that's what it sounds like. Basically, there are millions of Americans who've been wanting to go out and buy a house and they haven't been able to go out and buy a house. And I think this statistic is pretty remarkable that normally you've got on any given year a net gain of a million and a quarter new households forming so this is people moving out of their parents' basements or getting married and getting their first house.

Since the bubble burst, there's been a five-year stretch where we're seeing half that number of household formations. Now, that might sound like boring economic stuff. But I mean if you think about it, it's been 70 years since we've had these few households forming across the country. So that's millions of people who are frustrated. They want to move out. They want to get their lives going. There's a lot of pent-up energy there, and that's now starting to get released.

HOBSON: All right. Well, before we get too far ahead of ourselves, I want to just play a clip from a couple of weeks ago. I spoke with Gayle McLaughlin, who is the mayor of Richmond, California, and I asked her whether housing prices had rebounded there.


MAYOR GAYLE MCLAUGHLIN: In some of our neighborhoods, there has been some rebound in prices, but in a lot of them there have not. We have now I think it's 900 and something homes that actually last year went into foreclosure. And we have about 835 that are expected as future foreclosures.

HOBSON: And in Richmond, they have gone to the extent of actually using eminent domain to take back some mortgages so that they can keep people in their homes, not have foreclosures. Marilyn Geewax, what about that? There are a lot of places in this country where the housing market is not great.

GEEWAX: The realtors will always tell you that real estate is a very local business. Some places are booming. Some places are still in doldrums. Now, across the board, you do see this better trend, but there are lots of economists who say overall the outlook is not as bright as you might think. Yes, Chris is right. There are lots of folks who say there's pent-up demand, but there are weights pulling people down as well. And one of the big things that economists see as a potential problem is student debt.

You know, 20 years ago, the typical student in 1993 was graduating from college with about $10,000 in student debt. If you adjust that for inflation today, that should be about 16,000.


GEEWAX: But that's not what we have. In fact, the average now is 40,000. So people have debt loads that are two, three, four times greater than what people were graduating with just 20 years ago when we were starting this big housing boom in the '90s and on. So if we continue to have all of that debt, you know, you think about trying to save money for a home down payment, for a lot of people that just feels very out of reach.

HOBSON: Not only that, young people may decide not to have children because they can't afford them, and then they don't need those bigger houses...

GEEWAX: Exactly.

HOBSON: ...with multiple bedrooms.

GEEWAX: That's where the problem gets sort of compounded because during this recession we've seen birth rates really plunge. One of the things that has been always true about the U.S. economy is that we have a high birth rate. We've always had lot of new workers washing into the workforce every year. And since the recession started, the birth rate has fallen to a record low for this country.

So at a time when young people should be thinking, hey, I really want to get out of my mom's basement, I want to get a house, I want to start a family, the reality of a weak job market, poor wage gains and all of these debt hanging over them - car loans, student loans, credit card loans - they're just not in a position to realize that dream, even if they really would like to. And they may feel that pent-up demand, but they may not have the financial wherewithal to make it happen.

HOBSON: Well, Chris Arnold, your thoughts on that, especially given the news this morning that jobless claims - the number of workers in the U.S. seeking first-time unemployment benefits - fell to the lowest level since before the recession, since 2007. So we do have a somewhat-improving job market.

ARNOLD: Yeah. I mean, look, the bottom line is people are getting more jobs, and people have to live somewhere. There's only so long they're going to stay stacked up in Aunt Marge's house, or whatever. And renting isn't a cheap option. I mean, rents have been going up, while home prices have been going down.


ARNOLD: And a lot of national affordability indexes say, look, you know, people do the numbers, and they may not be thrilled about having a huge amount of debt, but they've got to live somewhere. And you can still go out and get an FHA loan with 3 percent down, and people whose family can kick in a little cash. I mean, it is still possible for people to go out and buy houses. So Marilyn's absolutely right, that there are these forces pushing in different directions, but there are a lot of people who think the housing market's coming back.

HOBSON: Marilyn, finally, let me go back to you and ask what all this means for the overall economy, if we are starting to see a rebound in housing in a big way that is so big that, as we heard earlier, the National Association of Realtors is putting out ads telling people to sell their homes.

GEEWAX: Housing has a great multiplier effect, especially new housing, even more than sales of existing homes, because when you get that new house, it's not just those construction jobs. It's a lot of things. It's the people who hang your drapes, the people who make the furniture, the people who sell you a new comforter. There are lots of jobs in the retail sector, landscaping, all kinds of things that spinoff from housing. So economists are constantly watching that sector, because it's really crucial as a job generator across the board.

HOBSON: Well, I'm sure we'll be able to have many more of these conversations in the months and years ahead. Marilyn Geewax, NPR senior business editor, and Chris Arnold, economics correspondent for NPR, thanks to both of you.

GEEWAX: You're welcome.

ARNOLD: Thanks, Jeremy.


And a quick note going into the break: This week, The New York Times noted last year's research from the Proceedings of the National Academy of Sciences that found drivers of high-status cars were the rudest. And the worst of those? Drivers of Priuses. Conan O'Brien had this take last night.


CONAN O'BRIEN: This is interesting. A new study just came out, finds that the very worst drivers - the very worst drivers, drive a Prius.


O'BRIEN: The very worst drivers, drive a Prius. Yeah. Apparently, it's very difficult to drive while patting yourself on the back.


YOUNG: Back in a bit. HERE AND NOW. Transcript provided by NPR, Copyright NPR.

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