Rising prices dampen home sales
Wednesday, May 29, 2019
Declining mortgage rates and increased inventory of lower-priced homes sent prospective buyers — especially first-time, entry-level buyers — flocking into the housing market in March. But as those homes were snatched up and the average selling price again began to rise, demand receded.
Month-over-month sales of both new and existing homes dipped in April, as did consumer sentiment that now is a good time to buy a home.
After reaching an 11-year high in March, sales of new homes (by volume) dropped 6.9% in April. However, due to positive growth in February and March, sales are up 7% from a year ago. Inventory remained high, at around six months.
The biggest difference between March and April was price. The median price of a new home sold in March was $302,200, and the average price was $376,000. In April, the median price of a new home was $342,200 (up 8.8% from a year ago), and the average price was $393,000. The biggest decline in sales from March to April was in homes selling below $300,000 as inventory in that price range receded.
Price increases also held down sales of existing homes, which slipped slightly for the second month in a row, following a soaring 11.8% month-over-month rebound in February. Although inventory increased, so did prices. The median price for an existing home sold in March was $259,400 ($261,100 for a single-family home).
That rose to $267,300 ($269,000 for a single-family home) in April, up 3.8% from the same time last year. Accordingly, fewer first-time buyers purchased a home in April as compared to February or March. Overall, sales remained more or less flat for the month, but are down 4.4% from April 2018.
Consumer sensitivity to changes in prices can be seen in response to Fannie Mae’s Home Purchase Sentiment Index. In March, the index leapt over 5 points, with a majority of both prospective buyers and sellers saying now was a good time to purchase or sell a home. The index inched back in April, largely due to an 8-point drop in consumers who say now is a good time to buy a home.
Even as sales lagged and inventories grew, new home starts rose in April, with new single-family starts up 6.2% over March. Requests for permits also increased, including a 6.2% month-over-month gain in single-family permits.
The National Association of Home Builders stated that builder confidence has strengthened due to increased sales and buyer traffic in April, as demonstrated by a 3-point lift in its Home Market Index for May.
On the whole, despite a rather lackluster opening to the second quarter and peak spring buying season, industry experts are sanguine about the market’s prospects. They believe lower mortgage rates, strong employment numbers, and rising household incomes will spur pent-up demand for a home purchase.
The crucial factor for many prospective buyers, though, appears to be price. If prices rise too high or too fast, those buyers may choose to remain on the sidelines and wait for the market to correct itself again.
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