The Mortgage Corner
Booming Realtors’ existing-home sales are showing there is a very severe housing shortage with record sales and a record low housing inventory. Calculated Risk says the for-sale inventory is down 18.6 percent year-over-year (YoY) in August. This is the lowest level of inventory for August since at least the early 1990s.
Sales continued to climb in August, marking three consecutive months of positive sales gains, according to the National Association of Realtors®. Total existing-home sales, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 2.4 percent from July to a seasonally-adjusted annual rate of 6.00 million in August. Sales are up 10.5 percent from a year ago (5.43 million in August 2019).
Reuters said recently, “With single-family building permits extending their uptrend in August, we think new home sales may continue to improve as well. We do think any further gain in August is likely to be much more modest, and our point estimate calls for an increase of about 2 percent, to an annual rate of 920K. That would represent a YOY increase of 30 percent, the highest monthly reading since the end of 2006. The YOY increase increase in the median price of a new home stood at 7.2 percent in July, also a new high.
And new-home sales are also booming while builders struggle to catch up to the higher demand. New home sales jumped 14 percent in July to a nearly 14-year high. It was the third consecutive monthly increase of that magnitude or larger. Can this last?
"Home sales continue to amaze, and there are plenty of buyers in the pipeline ready to enter the market," said Lawrence Yun, NAR’s chief economist. "Further gains in sales are likely for the remainder of the year, with mortgage rates hovering around 3 percent and with continued job recovery."
What is going on? We know the incredibly low interest rates are a factor. Also the Great Recession caused builders to literally stop building because of so much excess inventory frpom the busted housing bubble (foreclosures, etc.).
Housing construction actually fell some 80 percent over the past 10 years since the end of the Great Recession, and hasn’t yet caught up. We also have the Covid-19 pandemic that has temporarily reduced new household formation. The Federal Reserve said in a research note that from February to June, “This decline is of essentially the same magnitude as that seen over the entire Great Recession, and it corresponds to a drop in the number of occupied housing units—or an increase in the number of vacant units—of roughly 2 million.”
But that hasn’t slowed population growth. Forbes Magazine in a recent article said, “Scarred by the housing bust, homebuilders have been sitting on their hands for the past decade. Census Bureau data shows an average of 1.5 million homes were built each year since 1959. Yet over the past decade, just 900,000 homes have been built per year.”
What’s to be done? It can’t just be up to local governments with exclusionary zoning restrictions that NIMBYs use to restrict affordable housing in their neighborhoods.
In the 1980s, Congress established the Low Income Housing Tax Credit program to incentivize private developers to build affordable apartment homes and communities, reports USA Today. More than 3 million affordable units have been built under the program, and if Congress were to expand this program — as proposed in new bipartisan legislation (Affordable Housing Credit Improvement Act of 2019) — experts estimate that our country could create or preserve an additional 384,500 affordable homes over the next 10 years.
There is much more that can be done on the national level. Record income inequality has made home ownership much less affordable for Main Streeters. There has been no movement to cure the problem, such as a national minimum wage, or to strengthen labor laws that would boost the income of working families.
There has to be a concerted national effort so reverse this trend, in other words, or the homeless numbers will continue to rise in everyone’s backyard.
Harlan Green © 2020
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