By Rodney Carey
Despite the rough winter weather and the slow start to the spring selling season, the outlook for the housing market remains relatively positive. Industry analysts Zelman and Associates projects a 5% dip in 2014 home sales and low-single digit gains in 2015 and 2016. The bright spot for the industry has been improving sale prices. This tends to indicate that fundamentals remain in line for a continued recovery and that the lack of inventory for sale is at least a contributing factor in the weaker sales unit results.
The US Census Bureau pegged new home sales in 2013 at 430,000 and while that is up 17% over 2012 it still ranks as the 6th weakest year in the 51 year history of the tracking data.
So what will be the drivers of new construction be as we move forward? I’m paying attention to 3:
1. Household formation continues to grow as employment and economic conditions improve.
2. Existing inventory is at near historic lows and occupancy rates for both single-family and multi-family units are at above-average levels.
3. The percentage of vacant and distressed homes that have been a large part of the overall sales units and at or near historic-averages once again.
Over the last year, existing home sales have been a tale of two tapes. While home price inflation reached double digit growth and surpassed expectations, the 11% growth seen in the first 3 quarters was muted by just 1% growth in the fourth quarter. So far, the first 2 months of 2014 have yielded subpar results posting a 6% year-over-year decline and the lowest demand since the spring of 2012.
There are a few factors contributing to the soft market beyond increasing mortgage rates. We’ve seen a significant drop in REO listed for sale, frustrated buyers that are deferring a purchase decision based on insufficient inventory to choose from, and the dilemma faced by many of whether to buy or rent in today’s market.
So what does this mean for today’s housing market? The total number of sales for 2014 will be down slightly from 2013 but the values should be up (in the low single digits). New construction will be slow to fill the gap in the housing demand but will gain speed moving into 2015.
If you are a seller, this is your market. If you are a buyer, prepare for an active market with lots of competition from other buyers.
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