3 Challenges Still Facing the Housing Market
According to the National Association of REALTORS®’ latest housing report, existing-home sales gained momentum in June, reaching an annual pace of 5 million sales for the first time since October 2013. Rising inventories also are pushing the overall supply of homes for sale toward a more balanced market, with unsold inventories 6.5 percent higher than a year ago, NAR notes.
“Inventories are at their highest level in over a year and price gains have slowed to much more welcoming levels in many parts of the country,” says Lawrence Yun, NAR’s chief economist. “This bodes well for rising home sales in the upcoming months as consumers are provided with more choices.”
Still, the market is facing several headwinds that continue to subdue a more robust recovery. NAR noted three in its most recent housing report:
1. Sluggish new-home construction: While overall housing inventories showed improvement in June, inventory problems continue to weigh on the market and could become more problematic if new-home construction doesn’t increase in more markets, NAR notes. “New-home construction needs to rise by at least 50 percent for a complete return to a balanced market because supply shortages — particularly in the West — are still putting upward pressure on prices,” Yun notes.
2. Stagnant wage growth: Yun also noted that stagnant wage growth is holding back what should be a stronger pace of sales. “Hiring has been a bright spot in the economy this year, adding an average of 230,000 jobs each month,” Yun notes. “However, the lack of wage increases is leaving a large pool of potential home buyers on the sidelines who otherwise would be taking advantage of low interest rates. Income growth below price appreciation will hurt affordability.”
3. Dwindling first-time home buyers: The percentage of first-time buyers continues to be low by historical standards. First-time home buyers made up 28 percent of the market in June, down from a typical 40 percent of the market historically.
NAR President Steve Brown says that some prospective buyers who have above average credit scores but low down payments are being deterred from home ownership by the high cost of FHA mortgage insurance. “Access to affordable credit continues to hamper young, prospective first-time buyers,” says Brown. “NAR recommends that the FHA reduce high annual mortgage insurance premiums for all qualified homebuyers and eliminate the insurance requirement for the life of the loan. The FHA’s HAWK program is a good start, but it should offer further reductions for participating home buyers.”
Housing Snapshot for June
Here are some more housing indicators from NAR’s most recent report.
Home prices: Median existing-home prices for all housing types in June was $223,300, 4.3 percent higher than year-ago levels. This was the 28th consecutive month for year-over-year price gains.
Distressed homes: Foreclosures and short sales accounted for 11 percent of June sales, a 15 percent drop from year-ago levels. On average, foreclosures sold for a discount of 20 percent below market value, while short sales were discounted 11 percent in June.
Time on market: The median time on market for all homes was 44 days in June, up from 37 days on market in June 2013. Forty-two percent of homes sold in June were on the market for less than a month.
All-cash sales: All-cash sales made up 32 percent of transactions in June, up slightly from 31 percent in June 2013. Individual investors, who account for the majority of cash sales, purchased 16 percent of homes in June, down from 17 percent in June 2013.
Take a closer look at how existing-home sales fared in your area.
•Northeast: Existing-home sales increased 3.2 percent, but remain 3 percent below year-ago levels. Median price: $269,800, a 0.1 percent decrease from June 2013.
•Midwest: Existing-home sales surged 6.2 percent, but remain 2.4 percent below June 2013. Median price: $177,900, up 4.6 percent from a year ago.
•South: Existing-home sales rose slightly by 0.5 percent, up 1 percent from June 2013. Median price: $192,600, up 3.4 percent from a year ago.
•West: Existing-home sales increased 2.7 percent, but remain 7.3 percent below a year ago. Median price: $301,000, up 7.2 percent from a year ago.
Source: National Association of REALTORS®