Are we about to go bust again?
In a word you could say the US housing market has “slowed” but we are not headed for another housing bust. The end of 2013 and the first few months of 2014 saw robust price growth compared to historical trends. Since April, the activity has become a more measured pace but does that mean housing is starting to slide again?
Not at all. It simply means that the rate of price appreciation is not what it was earlier this year.
Market Snapshot
This year existing home prices nationally improved 10.9%, an increase of $23,400 for a median home of $215,000. Clear Capital’s latest housing survey (http://www.kiplinger.com/article/real-estate/T010-C000-S002-housing-outlook-2014.html?page=3) had price increases in 225 of the 276 cities that they cover. Based on this data, the improved prices are the strongest 3-month pace since January 2011 and the annualized unit sales would be 5.29 million, which is the highest sales volume in almost 4 years.
The subtle force behind the latest buyer trend is coming from the “young adult” demographic. As a result of improved employment rates coupled with wage growth this group has returned to household formation. With their help the net result is an increase in household formation from 900,000 to 1.2 million annually fueling a need for more housing. Since available houses for sale has had a limited inventory for several months now we’ve seen the principal of supply and demand begin to push prices up.
Why is inventory low?
According to the National Association of Realtors, the current inventory of homes available for sale is a 5 month supply (how many months it would take to sell the current inventory). A market that is in equilibrium would have an existing inventory of 6 months which is what is signaling the low inventory bell. Housing supply is impacted by 3 factors right now; 1) institutional investors have been buying properties to turn them into rentals, 2) builders have cut back on their building rate, and 3) homeowners have been reluctant to list their home because of limited equity and/or limited opportunities to move someplace else.
What does it mean to me?
This might be one of those rare occasions when it is a good time to sell your home and a good time to buy a home. While that might seem like a contradictory statement, the reality is that today’s market does benefit both sides of the transaction. Moving forward we see prices holding steady for the remainder of 2014 with a modest 3%-5% for 2015. Inventory should remain tight and mortgage rates remain at historically low levels.
These circumstances will help to eliminate the normal “winter slow down” we have seen in years past. Tight inventory and low rates are keeping buyers in the market year round now. Fewer homes on the market doesn’t mean lower prices, it represents increased opportunity for the limited houses that are on the market.
