Popular Economics Weekly
The Pending Home Sales Index, www.nar.realtor/topics/pending-home-sales, a forward-looking indicator based on contract signings, declined 0.8 percent to 111.4 in March from 112.3 in February. Despite last month's decrease, the index is 0.8 percent above a year ago.
Lawrence Yun, NAR chief economist, says sparse inventory levels caused a pullback in pending sales in March, with existing-home inventories in the 5 month range, but activity was still strong enough to be the third best in the past year. "Home shoppers are coming out in droves this spring and competing with each other for the meager amount of listings in the affordable price range," he said. "In most areas, the lower the price of a home for sale, the more competition there is for it. That's the reason why first-time buyers have yet to make up a larger share of the market this year, despite there being more sales overall."
That’s why the Case-Shiller Home Price index has increased 5.8 percent YoY. Housing prices are entering bubble territory, as the accompanying Calculated Risk Price-to-Rent comparison shows. It measures the ratio between housing prices and rents, and reached its highest level in 2006—meaning the housing price ratio had soared far above the historical 1-to-1 ratio of price-to-rents that prevailed in the 1980s and 90s, when housing prices rose more in line with rents. So, home buyers were paying prices they couldn’t really afford during the housing bubble, since rental rates are a better measure of incomes.
On a price-to-rent basis, the Case-Shiller National index is back to November 2003 levels, the Composite 20 index is back to August 2003 levels, and the CoreLogic index is back to July 2003, says Econoday, so we are not yet back to pre-recession price levels.
Pointing to revealing data from the March Realtors® Confidence Index, Yun worries that the painfully low supply levels this spring could heighten price growth — at 6.8 percent last month — even more in the months ahead. Homes in March came off the market at a near-record pace, and indicating an increase in the likelihood of listings receiving multiple offers, 42 percent of homes sold at or above list price (the second highest amount since NAR began tracking in December 2012).
The main reason for such “painfully lw supply” is soaring existing-home sales. “Existing sales rose a very sharp 4.4 percent to a higher-than-expected annualized rate of 5.710 million,” said Econoday. “This is the best rate since February 2007. Both components show strength with single-family sales up 4.3 percent to a 5.080 million rate and condo sales up 5.0 percent to a 630,000 rate. And year-on-year sales are moving higher, up 5.9 percent divided between 6.1 percent for single-family homes and 5.0 percent for condos.”
And housing construction is not yet catching up to demand. The first quarter ended with a thud for housing starts which fell a very steep 6.8 percent to a 1.215 million annualized rate which is the weakest since November, said the NAHB. Posting similar declines were both single-family homes, at an 821,000 pace, and multi-family, at 394,000. But housing construction does show nearly double-digit year-on-year growth, though quarter-to-quarter movement is barely perceptible.
The hope is housing construction will continue to pick up, as we expect housing demand to remain strong, and interest rates to remain low for the foreseeable future.
Harlan Green © 2017
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