In just one month, previously owned homes have slipped 0.6% from earlier months due to low inventory.
Homes Sales Begin To Slip As Buyer Demand Outpaces Supply
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(Image credit: Getty Images via @daylife)
Inventory continues to be the story of the daywhen it comes to the housing market. In March sales of previously owned homes slipped 0.6% from a month earlier due to tight inventory levels, according to theNational Association of Realtors.
“Buyer traffic is 25% above a year ago when we were already seeing notable gains in shopping activity,” said Lawrence Yun, chief economist of the National Association of Realtors, in a Monday statement. ”In the same timeframe housing inventories have trended much lower, which is continuing to pressure home prices.”
Completed sales of existing homes, including single-family houses, condos and co-ops, ticked down to a seasonally adjusted rate of 4.92 million sales per year in March. Despite the monthly decline, the sales pace remains 10% higher than a year ago.
Total inventory of previously-owned homes increased 1.6% from February to 1.93 million homes for sale, as sellers began listing their homes in anticipation of the spring home buying season. Despite the uptick, however, that’s nearly 17% less available stock compared to a year ago. At the current sales pace it represents a 4.7 month supply.
“The inventory improvement last month results from a seasonal gain, but conditions continue to broadly favor sellers,” said Yun. “We need a housing supply of over 6 months to have a generally balanced market between home buyers and sellers, but it’s unlikely we’ll get there without greater increases in housing construction.”
New home construction remained significantly depressed during the downturn, modestly returning in 2012 as homebuilders like D.R. Horton, Inc. andToll Brothers TOL +0.77% began rolling out new developments again, most notably in the multifamily arena. In March housing starts clocked a seasonally adjusted annual rate of 1.036 million, nearly 47% higher than a year earlier, according to the Commerce Department. Despite the gains, that number remains well below the 1.65 million annual starts achieved at the turn of the millennium, before the housing bubble inflated.
Inventory is also abnormally constricted because many prospective sellers cannot yet afford to do so. As of the end of 2012, 10.4 million homeowners remained underwater on their mortgages, meaning their loans are worth more than their homes,according to CoreLogic CLGX +8.7%. Totaling just under 22% of all mortgaged homes in the U.S., many of these upside-down homeowners are choosing to stay put until prices rise enough to restore their properties to positive equity.
Home prices continued their upward climb in March too. Nationally, the median sales price was $184,300 — just about 12% higher than this time last year. The double-digit year-over-year gain is the largest tracked by NAR since November 2005 when the median price jumped 13% year-over-year. Time spent on the sale block has dropped dramatically too: nationally, homes sat an average of 62 days on market, or about a month less than they did a year ago.
With less property to choose from, home buyers have been shelling out more for homes. In the most sought-after markets, bidding wars have become a common phenomena. Last week in Palo Alto, Calif. for example, a home listed for $1,998,000 and, after 22 offers, went into contract two days later for $2,700,000, according to Ken Deleon of Deleon Realty. Redfin chief executive Glenn Kelman says his agents are reporting flash sales, month-to-month price markups, and instant home flips in recent months.
Despite the inventory crunch in many markets, an increasing number of buyers have been on the hunt. With home prices on the rise and with interest rates hovering near historic lows — and speculation that they will begin to rise by the end of the year — many potential buyers who had remained on the fence for the past several years are now shopping under the belief that home affordability levels will continue to drop from their historic highs.First-time home buyers comprised 30% of the buying pool; individual investors comprised 19%. Institutional investors too have become a growing percentage of the buying pool, with hedge funds and private equity firms snapping up thousands of single-family homes in markets like Las Vegas and Tampa, Fla. Foreign buyers have also continued to plow money into U.S. housing. In the 12 months ending in March 2012, international buyers purchased $82.5 billion worth of U.S. residential real estate, according to the National Association of Realtors, up nearly 25% from the year before.
As an increased number of investors troll for distressed property, foreclosures and short sales make up a shrinking number of sales: they were 21% of existing home sales in March, down from 29% from a year ago. The spread between non-distressed and distressed home prices is shrinking too. Foreclosures sold for an average discount of 15% , while short sales fetched an average discount of 13%. Still, it’s important to note that while foreclosure activity is on the decline nationally, several states have logged dramatic increases in recent months, according to RealtyTrac. In the first quarter of 2013, 11 states experienced jumps in foreclosure activity, including five (Maine, New York, Maryland, Washington, and Arkansas) that saw triple-digit surges.
Not everyone believes the so-called housing recovery is on solid footing. Earlier this month Zillow asserted that housing may not be as affordable as generally believed. The real estate site found that relative to median income, which has remained painfully flat in recent years, home prices in the 30 largest cities are still higher than their pre-bubble historic norms. Historically low mortgage rates maintained by the Federal Reserve’s bond and mortgage-backed securities buying programs offer the “illusion” of home affordability, according to Zillow chief economist Stan Humphries, and could actually threaten home values in the coming years once those rates begin to rise again.
Even so, right now springtime home buyers can expect to experience increased competition: “Multiple bidding is becoming more common, and more homes are selling above the asking price, so buyers need to move quickly and follow their realtor’s advice for contingencies when making contract offers,” cautions Gary Thomas, president of NAR and broker-owner of Evergreen Realty in Villa Park, Calif.
