1. Importance of National Economic Trends for the Real Estate Professional
    1. National Economic Trends (i.e. interest rates, price appreciation, housing affordability etc.) impact individual consumer's ability to purchase a home and the Real Estate Professional's ability to address a consumer's homebuying needs.(see The State of the Nation's Housing)
    2. Trends in home prices are a key component of a real estate appraiser's value conclusion (see The Appraisal of Real Estate - American Institute of Real Estate Appraisers 12th Edition - Chapter 3 "Foundations of Appraisal", Chapter 6 "Money Markets and Capital Markets" and Chapter 7 "Data Collection")
      1. National housing trends impact the supply and demand for housing and the resulting prices a consumer will pay for individual transactions
    3. Municipal tax rates and property assessments are directly impacted by national real estate trends' impact on property values. (See Property Assessment Valuation - International Association of Assessing Officers Chapter 4 "General Data -Trends Affecting Property Value and International, National and Regional Data")
  2. Housing and the Economy
    1. Understanding the role of housing and consumer trends is critical to meeting homebuyer needs, interacting with appraisers and understanding the forces that impact municipal tax rates and assessments
      1. Housing's contribution to the national economy (See State of Nation's Housing)
      2. Home price appreciation trends (See Office of Federal Housing Enterprise Oversight Price Appreciation Index http://www.fhfa.gov/?Page=14)
        1. Impact on appraisals and property assessments
        2. Impact on national and Massachusetts' economy
      3. Impact of mortgage rates on the economy (see The Appraisal of Real Estate - American Institute of Real Estate Appraisers 12th Edition - Chapter 6 "Money Markets and Capital Markets")
        1. Stable and declining rates positively impact property values
        2. Volatile and/or increasing rates negatively impact property values
      4. Strong new and existing home sales are indicative of a strong real estate market (See National Association of Realtors Existing Home Sales Data and Housing Affordability Index http://www.realtor.org/topics/housing-affordability-index/data)
      5. National Homeownership Rate is a key indicator of the strength of the housing sector (see US Census Information on homeownership rates ( http://www.census.gov/housing/hvs/)
        1. All income levels benefit
        2. Increasing home ownership levels increase amount of low and moderate income consumers' ability to purchase homes
        3. Factors effecting the national homeownership rate:
          • Mortgage interest rates
          • Unemployment rate
          • Job Growth
          • Home price appreciation
  3. Housing Demographics (See State of Nation's Housing)
    1. Household growth is the increase of the number of individuals, groups of individuals or families seeking to purchase or rent a home.
      1. Household growth is the primary driver of housing demand
    2. Currently the key drivers of household growth are minorities, aged and older singles and empty nesters
    3. Minorities are forecasted to add 7.5 million households between 2000 and 2010 and another 7.8 million households between 2010 and 2020.
      1. Minority share of US households are expected to grow steadily from the current 25% to 33% of US households over the next 20 years.
      2. Example: Hispanics comprise nearly half of the 25.3 million immigrants arriving in the US since 1980. Hispanics will be a key driver of household growth in the next twenty years.
      3. Example: During the 1990's Hispanic households grew by 58%.
    4. Family composition will impact household growth through declining household size.
      1. The number of people living alone is expected to rise by nearly 5 million from 2000-10. Number of elderly empty nesters, divorce rates and declining remarriage rates are key drivers of this growth.
    5. The demographic outlook for the next decade.
      1. The ability of minority households to access the homeownership markets will be critical to the strength of national and Massachusetts' housing markets over the next decade.
      2. Positive household growth trends should support stronger new home construction, demand for second homes than the 16.6 million units built and manufactured during the decade of the 1990's.
  4. Conclusion
    1. Interdependence is the key to the factors that impact the housing role in the economy
    2. House price appreciation is driven by the following factors
      1. Interest rates
      2. Household growth
      3. New home construction
      4. Existing home sales
      5. Job Growth
    3. All the above factors impact prices consumers can pay for housing and the resulting values that are key to property appraisals and municipal tax assessments

Recommended Course Materials:

  • The State of the Nation's Housing (available at www.jchs.harvard.edu)
  • US Census Information on homeownership rates ( http://www.census.gov/housing/hvs/)
  • The Appraisal of Real Estate - American Institute of Real Estate Appraisers 12th Edition - Chapter 3 "Foundations of Appraisal", Chapter 6 "Money Markets and Capital Markets and Chapter 7 Data Collection"
  • Property Assessment Valuation - International Association of Assessing Officers Chapter 4 "General Data -Trends Affecting Property Value and International, National and Regional Data"
  • Office of Federal Housing Enterprise Oversight Price Appreciation Index ( http://www.fhfa.gov/?Page=14)
  • National Association of Realtors Existing Home Sales Data and Housing Affordability Index ( http://www.realtor.org/topics/housing-affordability-index/data)