Homes For Sale: A Market Seeking Balance
The last couple posts I shared some recent news for homes for sale. I specifically touched on the drop in April of Existing Home Sales, as well as the highest Pending Home Sales in 9 years.
These are the latest numbers from the National Association of Realtors most recent Existing Home Sales Report.
Here is more from that report, and for the most part, the news is good.
As I have mentioned before, if you are in the market to buy or sell a home, it is important that you know and understand the numbers.
If you simply rely on the headlines of the national and local media, you may get the wrong impression of what is really going on in the market.
To sum things up simply, there is plenty of good news for real estate. The market is doing very well.
However, there are a few issues that could slow the market down–more on those in a minute.
First, let’s start of with the good news.
Pending Home Sales increased for the fourth straight month. All four major national regions (Northeast, Midwest, South and West) saw increases in the number of homes for sale go under contract.
Pending Home Sales are important, because they are an indicator of future sales.
These homes will take anywhere from 30-90 days to close, and will then show up on a future Existing Home Sales Report as sold homes.
The Pending Home Sales numbers will not match up exactly with future sales numbers for various reasons.
However, if you watch the trend of Pending Home Sales, it will usually be a projection of the Existing Home Sales trends in about 2 or 3 months.
The National Association of Realtors (NAR) has their own Pending Home Sales Index that is an indicator of future sales.
The link better explains the methodology behind the index, but a historically normal index level is 100.
The PHSI rose in April by 3.4%. The index rose to 112.4% in April, which is the highest level since it hit 112.5% in May of 2006.
Additionally, the index is 14% over April of 2014, and that year-over-year gain is the largest since a 15.1% increase in September 2012.
You can read more into detail about the Pending Home Sales here.
Homes for sale are also selling at their fastest pace since July 2013 (42 DOM), at an average Days On The Market (DOM) of 39 days.
This is the second fastest pace since NAR began tracking this stat in May 2011 (the fastest pace was in June 2013, at 37 DOM).
The Median Price for existing homes also increased in April, to $219,400. This was an 8.9% increase over April 2014, and is the largest year-over-year increase since January 2014 that saw a 10.1% increase.
April marked the 38th consecutive month of a year-over-year increase in the Median Price.
The number of Distressed Sales (foreclosures and short sales) decreased year-over-year in April, by 5% (in April 2014, 15% of all sold homes were distressed sales, compared to 10% for April 2015).
There were a couple of numbers that provided a little bit of a downer on all of the good news. But these numbers show exactly the hurdles this market is dealing with.
First, a little mixed news. National inventory levels were down year-over-year.
In April of last year, there was a 5.7 Month Supply of Inventory.
This April that dropped to 5.3 Months.
However, that is up from March, which saw a 4.6 Months Inventory.
The spoiler for the Existing Home Sales Report was the fact that Existing Home Sales in April were down from March by 3.3%.
However, this too is mixed news as the year-over-year sales numbers are actually still 6.1% higher than last April.
So, what does all this mean for homes for sale?
To best sum up the current real estate market, here is a quote from NAR’s Chief Economist, Lawrence Yun:
“April’s setback is the result of lagging supply relative to demand and the upward pressure it’s putting on prices,” he said.
“However, the overall data and feedback we’re hearing from Realtors® continues to point to elevated levels of buying interest compared to a year ago.
With low interest rates and job growth, more buyers will be encouraged to enter the market unless prices accelerate even higher in relation to incomes.”
He also said:
“Housing inventory declined from last year and supply in many markets is very tight, which in turn is leading to bidding wars, faster price growth and properties selling at a quicker pace,” says Yun.
“To put it in perspective, roughly 40 percent of properties sold last month went at or above asking price, the highest since NAR began tracking this monthly data in December 2012.”
Basically, the supply of homes for sale is not meeting up with the demand. This in turn is causing home values to increase at a much faster than “normal” rate.
We are just starting to enter the peak selling season–Spring and Summer. However, 2015 is not been a typical year because buyers have been out in full force since January.
Many sellers wait until Spring/Summer to list their homes.
One measure NAR does to gauge buyer interest is Foot Traffic–this is measures the number of properties shown by Realtors, and it has a strong correlation to future contracts.
If you look at the graph below, you will see that the Foot Traffic numbers remained strong through the Winter months, when typically there is a drop off (compare Winter of 2014 to Winter 2015):
While it is good news that the Months Supply of Inventory increased from March, it is still not quite where we want it to be.
A normal real estate market will have a 6 Months Supply of homes for sale.
We are in a Sellers Market currently.
5.3 is a good number, and hopefully with the selling season upon us, we will see that number at least maintained.
For the early part of 2015, Inventory numbers were down.
In fact, March was the first month that saw a gain in year-over-year Inventory numbers.
However, the rate at which they appreciate is important to keep an eye on.
The appreciation rate ran wild at the end of 2013 and into 2014, but it was starting to get reigned in closer to a more normal, healthy rate of 3%-4% by the end of 2014.
The start of 2015 has seen the appreciation rate accelerate, although not in the double digits.
However, when the supply does not keep up with demand (as we have seen so far this year), then prices get driven up even faster.
Along with Inventory Levels, we should keep an eye on the rate at which homes appreciate–although the two are closely tied to each other.
Rising home values could price some buyers out of the market.
However, they could also motivate more home owners to sell, which would add more inventory and keep prices in check.
So, the whole housing market is one big circle that comes back to Inventory.
Rising interest rates have been mentioned as a possible deterrent to potential homebuyers.
However, interest rates remain lower than what was expected. The Fed has not yet increased the rate as was expected by now.
It will likely happen before year’s end, but it probably won’t have that big of an impact.
Rates remain near their historic lows. They have crept up some, but have been under 4% for 2015.
Studies have shown that potential buyers are more concerned with credit and down payment as opposed to interest rate.
At the end of the day, it all comes back to inventory.
Overall, there is good news out there for real estate. The market is doing very well, other than the fact that there is stronger demand for houses than there is a supply of homes for sale.
If this disparity can get into a better balance, then all will be well. 2015 is on track to be one of the best years for real estate in the last 10 years.
Industry experts also see continued growth through 2019, although they expect the market to cool off a little and continue to grow at historically healthy levels.
Whether you are looking to buy or sell, this is a great time to do so.
In my next post I will look into the Charleston SC real estate market numbers to see how they compare to the national numbers.
If you are looking to sell your house, then visit my Pam Marshall Realtor sellers page. Even in a market that needs inventory, it is still important that you hire the right agent.
If you are looking to buy homes for sale in Charleston SC, then visit my Pam Marshall Realtor Charleston MLS search page.