AFFORDABILITY ISSUES PRESSURE HOME SALES
The National Association of Realtors (NAR) released news that, in February 2017, existing home sales dropped 3.7% year over year to a seasonally adjusted rate of 5.48 million1. Part of the issue was that January 2017’s sales started rapidly out of the gate (at a seasonally adjusted rate of 5.69 million), though the February 2017 closing sales topped February 2016’s figures, as seen below.
The United States is in the midst of a fairly hot sellers’ market. So why the drop in sales?
According to NAR’s chief economist Lawrence Yun, the problem is that, while homeowners have indicated they’ll be listing their houses for sale, it hasn’t happened yet. The result is, Yun noted, is too few properties for sale, especially affordable properties. Though Realtors have been experiencing increasing foot traffic from the year before, “newly listed properties are being snatched up so quickly, so far, this year, and leaving behind minimal choices for buyers trying to reach the market,” Yun said.
And this is February. Typically, home sales escalate in spring, and move through summer. What is going on?
The Price is Not Right
Scarcity of inventory has meant price increases. Though the year-over-year growth rate of median home listing prices increased by “only” 7.5% in February 2017, (versus the 8.6% increase reported in February 2016), it was likely high enough to keep some buyers sidelined, as they tried to find the perfect house that would fit their budgets.
Breaking this down into real numbers, the median listing price for active listings in February was $250,000. In February 2016, the median price was $228,000. The NAR’s median listing prices for ALL housing types in February was $228,400, was a 7.7% increase from the prior year’s median of $212,100. The NAR then went on to say that February’s price increase was “the fastest since January’s 8.1%.” On the chart, above, the January 2017 median price for active listings had increased by 9.6%, year over year.
For reference, an “active” listing refers to one that is on the market, and ready to sell. We’re leaving out “pending” listings (those that are currently under contract), as those houses are currently off limits to potential buyers.
The Inventory Conundrum
We have continually written about the issues with housing inventory. In a nutshell, there doesn’t seem to be enough homes for people who are interested in buying them. The NAR’s active listing roster had 1.3 million active listings in February 2017 (i.e., houses available for sale). This might seem like a lot, but it also represented an 11.5% drop from the year before.
Even 10 years after the start of the Great Recession, the nation is playing catch-up when it comes to housing. The above represents houses that are available, and on the market. The NAR points out that TOTAL housing inventory at the end of February (houses that are under contract, as well as new and active listings) was 1.75 million – but that figure represents a 6.4% drop from the year before. Meanwhile, unsold inventory is at 3.8 months, at current sales prices, well below the market equilibrium of 4 months-6 months. As such, it’s little wonder that buyers are remaining on the sidelines, for the time being. And, it’s no wonder that existing-home sales are stumbling.
Is Help on the Way?
If there is a bit of good news in the home-building industry, it’s that housing starts have been increasing.
What isn’t clear from the data, however, is the type of housing that is being built. For years, homebuilders have relied on building higher-priced homes, in an effort to recoup increasing land and labor costs. Though there is anecdotal evidence of some homebuilders working toward more affordable housing, it’s uncertain if there is enough to meet the demand.
So, Yun has it right. Until sellers actually start listing their houses on the market, “home prices will continue to move hastily.”