A spate of new economic reports shows that a speedier recovery of the housing market does not appear in the cards this year. Housing experts are dialing back rosier projections in favor of another ho-hum year, where home sales are flat and prices climb to make ownership less affordable.
The National Association of Realtors hinted Tuesday that it’ll lower, perhaps as soon as Monday, its forecast for sales of existing homes. The group reported that sales dipped 0.2 percent in March to an annualized rate of 4.59 million, with sales of single-family homes dipping 7.3 percent compared with the pace of March 2013.
Wednesday brought similarly weak data on new home sales. Sales of newly built, single-family homes dropped 14.5 percent in March to an adjusted annual rate of 384,000 units, according to data from Department of Housing and Urban Development and the U.S. Census Bureau. That’s a double whammy because new homes tend to be purchased by homeowners who are trading up.
A week earlier, the two agencies reported that nationwide housing production rose 2.8 percent above February numbers, a positive data point but one hardly indicative of a sizzling housing market.
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It all adds up to the likelihood of yet another subpar year for the housing sector.
“The (sales) forecast will be coming down and that is largely due to affordability challenges,” Danielle Hale, director of housing statistics for the Realtors group, said in an interview. “Incomes have not kept pace with the pace of house price increases, which has made homes less affordable this year than they were last year.”
The weak sales of new and existing homes come even as hiring appears to have moved onto more solid ground in the past six months.
“I’m puzzled by the fact that existing home sales have been so weak,” conceded Patrick Newport, an economist specializing in housing for forecaster IHS Global Insight.
There are contributing factors to the sluggish housing market, he said, including nearly a full percentage-point rise on 30-year fixed mortgage rates and an unusually harsh winter. The average rate on a 30-year fixed mortgage is still below 4.5 percent, according to multiple surveys. That’s lower than mortgage rates in the long stretch between 1990 and 2008, when home sales and prices flourished nationally.
The problem is that five years since the end of the Great Recession, few Americans can qualify for the historically low mortgage rate. After the near-collapse of the housing market in 2007-2008, lending standards tightened and first-time homebuyers with little credit history still struggle to get a loan. That’s led to home sales falling across the lower price points.
Only $1M-plus homes up
Homes priced under $100,000 are going backward, sales of those priced between $300,000 and $600,000 are flat, and only those worth more than $1 million are up, by about 8 percent. And first-time homebuyers accounted for about 30 percent of sales in March, vs. 40 percent in more normal times.
“What we’ve seen in the data is that the lower end of the market (for mortgage applications) seems to be contracting while the higher end seems to be growing,” said Joel Kan, director of economic forecasting for the Mortgage Bankers Association. “Everything below $417,000 is declining; everything above that has been increasing. One of the reasons (why) is we’re seeing less first-time homebuyers in the market.”
Credit products extended to homebuyers are now about one-eighth of what they were during the bustling 2006-2007 period, Kan added.
“Whether it is tight credit or not, people are definitely putting off home purchases,” he said.
Another wrinkle is that distressed sales are down. The Realtors’ data show that 10 percent of sales in March were foreclosures and 4 percent were short sales, where the bank agrees to take a hit on homes valued below the mortgage they carry. These distress sales in recent years helped clear away inventory but held back home price appreciation. Their reduced presence means fewer sales but also points to a market returning to normal.
The reduction in distress sales is particularly true in California, which was an epicenter state for the housing crisis along with Florida, Arizona and Nevada.
“We started our recovery about two years before the nation,” said Leslie Appleton-Young, chief economist for the California Association of Realtors. “So in California, we had big increases in sales in 2008 and 2009 as investors started to pick up properties selling at below replacement costs.”
With the investor frenzy ebbing, only the San Francisco Bay Area and Silicon Valley are still seeing rapid gains in sales and prices.
“I think the market is really a little bit exhausted. You have so many buyers who have been disappointed,” Appleton-Young said, noting that cash investors still snap up homes while average folks must lumber through the mortgage process. “In some of these areas, it seems like you are working with people who don’t really have a budget constraint.”
For all of 2013, 31 percent of all home purchases were cash sales rather than homes purchased with a mortgage. State-level data vary widely from month to month, but four states had cash sales last year in a range of 35 percent to 39.99 percent – Arizona, Delaware, Mississippi and West Virginia. Two states had cash sales in a range of 40 percent to 49.99 percent – Hawaii and Nevada.
Leading all states in cash sales was Florida, at an average over the full year above 45 percent.
In Miami-Dade County, 60.5 percent of closed sales in March 2014 were cash sales, according to the latest data Tuesday from the Miami Association of Realtors.
Idaho, Connecticut and Alaska all have posted cash sales above 40 percent at some point over the past year but not over a full year.