Last summer existing home sales reached a peak of 5.38 million, but according to the seasonally adjusted rate basis (SAAR) reported in January, they have since declined to 4.62 million. This 14% decline has left the market feeling a bit weak, but there is some good news on the horizon, as many experts predict this weakness to be only temporary.
What is causing the Weakness?
There are several factors causing the ups and downs of the housing market. From increased mortgage rates and prices, to a decrease in available distressed sales and investor buying.
Another theory being discussed among those is real estate, is the influence of the Polar Vortex, which has gripped most of the country this winter. With so many people not really being able to go outside because of bitter cold temperatures, it makes searching for a new home less of a priority.
There may not be definitive data to back up the weather claim, but there is data to support a rise in home prices. Case-Shiller, CoreLogic, FNC and other price indexes are all reporting a steady and significant increase in home prices. The Case-Shiller indices saw a 13.7% year-over-year increase in their November report of Comp 20 home prices.
As mentioned above, prices aren’t the only thing going up. 30-year fixed mortgage rates have also risen from 3.41% in January 2013 to 4.43% in January 2014. This increase, while relatively steady for now, may be keeping some perspective homebuyers out of the market.
Additionally, the amount of distressed sales from foreclosures has decreased, which has also meant a decrease in less home sales overall. Having fewer homes go into foreclosure is always a positive, even though it does seem to be affecting the overall housing market. The good news is that traditional home sales do seem to be on the rise.
Inventory is also on the decline as investors have less distressed homes to buy, and the properties they do own are being used as rental properties, with no intention on selling. The limited inventory is also due to those who can’t afford to sell their homes, as well as those who believe that prices will continue to rise and have decided to wait to sell. This makes it difficult to not only find a house to buy, but keeps those interested in selling from listing their house because they are not sure they will be able to find a new home once theirs is sold.
With all of these contributing factors, one might think this is bad news for the housing market. In reality, having less distressed homes available is actually a positive step forward, as are higher prices. The increase in pricing should lead to more inventory, which will then result in slowing the pricing increase. In January 2014, the NAR reported a 7.3% increase of inventory year-over-year.
New Home Sales Outlook
In 2013, new home starts were constricted by limited land availability and shortages of labor and material. These limits caused new home sales to only rise by 16.3%. Although starts and sales of new homes are both up since 2012, sales seem to be fluctuating in a more sideways motion.
According to the December 2013 SAAR, new home sales were up only 4.5% from December 2012. The growth of new home sales isn’t up as much as some would like, but the sales are still solid. The good news is that with a growing population, experts and homebuilders are optimistic about the increase in new home sales and starts over the next few years.
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I am the CEO of EquiAlt: real estate based alternative investment firm with activities in equity, debt and private equity. Since 2008, EquiAlt's management has demonstrated a high level of competence in hundreds of distressed asset transactions, recapitalized companies while lending on landmark Las Vegas projects.
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