Creeping prices keep lid on home sales
Tuesday, January 28, 2020
Low mortgage rates helped drive home sales in December. At the same time, shrinking inventories combined with increased demand to push home prices higher.
That left some buyers, especially those at entry level, with fewer or no options, holding down the number of potential sales. Nevertheless, analysts are optimistic that market conditions will remain positive in 2020.
Sales of existing homes rebounded from a 1.7% drop in November, climbing 3.6% month-over-month in December. Much of that gain came from condo and co-op sales, which soared 10.7% for the month. Single-family sales rose 2.7%. Total sales were up 10.8% from December 2018. However, the number of existing homes sold during the year, 5.34 million, matched that of 2018, resulting in zero growth.
New home sales slid for the third month in a row, with the U.S. Census Bureau adjusting its original estimated sales for November downward. Annual sales dipped 0.4% month-over-month in December. Still, in total number of units, December’s figure was 23% higher year-over-year, and on an annual basis, sales ended the year 10.3% above 2018’s mark.
With existing home sales gaining ground and new home sales lagging, online real estate brokerage Redfin reported combined sales in the metro areas it tracks squeaked up just 1% for the month, 6.8% above a year ago. It was the fifth consecutive increase in month-to-month sales recorded by Redfin.
Although consumer demand for housing remains high, home sales are facing pressure from constrained inventories and rising prices. Fannie Mae stated that its Home Purchase Sentiment Index (HPSI) in December held steady and has been hovering close to its highest point for some months. The proportion of respondents saying now is a good time to buy a home was 16 points higher than it had been a year ago. Yet, that indicator fell 5 points from November due to concerns about rising home prices, the possibility that mortgage rates will begin to climb and signs of slowing in the economy.
According to Redfin, the supply of homes for sale in December fell 14.9% year-over-year, the biggest decline since March 2013 and the sixth straight month of declines. New listings were down 5.1% from the previous December, the largest drop on record since the company began tracking sales in 2012.
The National Association of Realtors (NAR) also reported a 14.6% monthly drop in inventory of existing homes for sale, leaving only a three months’ supply. And while new home starts have soared in recent months, the pace of new construction is still well below historical levels and is expected to taper off during the winter months.
Low mortgage rates and tight inventories make this a seller’s market in many areas of the country. The NAR relates the median prices of an existing home sold in December was nearly 1.5% higher than in November and 7.8% higher than the previous December.
The median price of a new home was up just 0.5 % from a year ago, but the average price was around $50,000 more. Only about 10% of new home sales were in the desired entry-level price range, and the number of first-time buyers declined.
Amidst the uncertainty, analysts are encouraged that the market will sustain positive growth in 2020. Lawrence Yun, chief NAR economist, commented, “We saw the year come to a close with the economy churning out 2.3 million jobs, mortgage rates below 4% and housing starts ramp up to 1.6 million on an annual basis. If these factors are sustained in 2020, we will see a notable pickup in home sales in 2020.”
Similarly, Doug Duncan, chief economist for Fannie Mae, stated that the organization’s most recent macroeconomic outlook predicts “a healthy housing market in 2020, as well as consumers’ appetite and ability to absorb the expected increase in entry-level inventory.”
In presenting the National Association of Home Builders (NAHB) housing forecast during the recent International Builders’ Show, the association’s chief economist, Robert Dietz, told the audience NAHB projects an increase of 2% in housing starts for the year (including a 3% gain in single-family starts) and 2.5% growth in new home sales.
If the economy remains strong and mortgage rates stay low, sellers are likely to find buyers willing and able to meet their price. But unless prices begin to ease and even to come down a little, many prospective entry-level buyers will spend another year shut out of the market.
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