Housing still searching for the sweet spot
Wednesday, April 24, 2019
Housing activity flip-flopped in March, with sales of existing homes plunging while the market for new homes heated up. Declining home prices and mortgage rates helped to lure buyers, especially at the lower end of the price scale, but there was not enough low-priced inventory to go around, stifling sales.
Even with a strong economy and more favorable borrowing conditions, the industry is still struggling to find the right mix of inventory and affordability to help it reach escape velocity from the ongoing cycle of alternating months of positive and negative growth.
Following a weak start in January, sales of new homes in March rose for the second month in a row, up 4.5% over February’s 4.9% hike, hitting their highest level in volume in 16 months. Sales now are 3% higher than they were at the same time last year.
A drop in mortgage rates, hitting their lowest point in over a decade in late March, provided some incentive, as did price cuts offered by builders looking to move inventory before the close of the first quarter. The median price of a new home fell from $315,000 in February to $302,200 in March, with homes in the $200,000 to $400,000 range continuing to attract the most buyers.
Existing-home prices, on the other hand, increased overall in March, counteracting lower mortgage rates. The median price in March was $259,400, up from $249,500 in February. The median price of a single-family home in March was $261,100, compared with $251,400 the previous month. Sales of existing homes fell 4.9% compared to February, during which sales surged 11.9%.
As the industry enters the peak homebuying season for the year, inventories of both new and existing homes have increased. Completions of new single-family homes soared 11.9% in March, ending the month with six months of inventory at the current sales rate. Existing-home inventory grew by nearly 3% for the month and 2.4% from a year ago, with a 3.9-month supply at the current sales rate.
Consumer confidence and the demand for housing both remain strong. Fannie Mae reports that its Home Purchase Sentiment Index (HPSI) rose 5.5 points in March to its highest level since June 2018. The proportion of respondents saying now was a good time to buy a home was up 7 points and of those saying now was a good time to sell a home leaped 13 points.
Reacting to the news about mortgage rates, the proportion of respondents who said they expected mortgage rates would go down in future months increased 7 points. That and solid confidence in the economy, job security, and personal income boosted prospective buyers’ optimism.
Although mortgage rates have begun to creep up again, they are still lower than earlier in the year. That, along with additional inventories, should bode well for builders and realtors as the market strives for more equilibrium between homes available for sale and affordability.
According to the Mortgage Bankers Association (MBA), mortgage application activity for home purchases remains strong, reaching its highest level since April 2010 last week. Said Joel Kan, MBA's associate vice president of economic and industry forecasting, "The spring buying season continues to be robust, with activity more than 7% higher than a year ago and up year-over-year for the ninth straight week."
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