Housing’s delicate balance
Wednesday, February 27, 2019
With home sales continuing to fall, things don't look good at the moment for the housing industry. Nonetheless, builders and realtors remain optimistic that the tide is beginning to turn in their favor.
A number of factors, such as declining mortgage rates and home prices, rising inventories of homes for sale, and strong consumer confidence in the economy, may lure more buyers into the market this spring. Much depends, however, on whether the economy begins to slow down, as some experts predict, and whether current homeowners view this as an optimal time to sell.
Sales of existing homes dropped for the second month in a row in January (by 1.2 percent), although not as precipitously as in December (by 6.4 percent) or as a year ago (by 3.2 percent). In volume, sales hit their lowest level since November 2015 and are now down 8.5 percent from the same time last year.
Upon release of the report, Lawrence Yun, chief economist for the National Association of Realtors (NAR), stated, "sales likely have reached a cyclical low. Moderating home prices combined with gains in household income will boost housing affordability, bringing more buyers to the market in the coming months."
Supporting that view, Fannie Mae announced that its Home Purchase Sentiment Index (HPSI) rose 1.2 points in January, largely due to an eight-point jump in those who reported substantially higher income than at the same time a year before. Participants also were less concerned that home prices and mortgage rates would increase in the coming months, and slightly more said now was a good time to buy a home (up 1.2 points).
Data from federal agencies on new home construction and sales are still lagging behind as a result of the month-long government shutdown in December and January. Dodge Data & Analytics reports new single-family home construction (by dollar value) in January remained about the same as December, but was up 3 percent compared to January 2018. Similarly, Redfin estimates new home sales (in units) dipped just 0.2 percent in January, compared to December, declining 8 percent from a year ago.
According to the RE/MAX National Housing Report for January, overall home sales (new and existing) in the markets it tracks were down 11 percent year-over-year. Redfin puts overall home sales in January at 7.6 percent below the previous year, the sixth consecutive month of declines.
There was some good news in the latest reports. Home prices are not accelerating as rapidly as they did early last year. RE/MAX found the median price of all homes sold in January was up 4.6 percent, a sizable decrease from 6.7 percent in January 2018. The NAR reported the median price of a single-family home increased 3.1 percent for the year, slightly higher than the 2.8 percent for all existing homes. Redfin calculates the median price of homes sold in January was 2.9 percent above that of a year ago.
Inventories of homes for sale are increasing. Zillow stated that for the first time in five years inventories had increased year-over-year, by 1.2 percent. The NAR stated the number of existing homes for sale rose by about 3.8 percent for the month.
Redfin reported the number of all homes for sale in January was up 6.3 percent from December, the biggest increase since May 2015. "We expect the supply of homes for sale to increase," said Redfin CEO Glenn Kelman, "giving buyers more homes to buy, but not so many that prices drop broadly."
Coinciding with these developments, the Federal Reserve’s decision not to raise interest rates any time soon has helped push down mortgage rates, which topped 5.0 percent for a while last November, to 4.3 percent this week.
The National Association of Home Builders said the decline in interest rates, along with growing consumer confidence, drove its February Housing Market Index, an indicator of builder confidence, up four points over January’s score. Builders reported improvements across the board in current sales, buyer traffic and expectations for the next six months.
Combined, these positive trends boosted pending home sales in January, which rose 4.6 percent for the month following a 2.2 percent decline in December. That’s the biggest month-over-month increase since February 2017 and possibly a sign of an impending market rebound this spring. That depends on whether conditions continue to stabilize — still a big "if" — but looking more possible than a just a couple of months ago.
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