Relentless supply constraints and home price growth outpacing wages are testing the patience of home buyers in the United State this year, but existing home sales are still on track to come in at their highest pace since 2006.
Monthly existing home sales were uneven in the first quarter but still came in at a seasonally adjusted annual rate slightly higher at 5.29 million than last year’s overall annual pace of 5.26 million, National Association of Realtors chief economist told the 2016 Legislative Meetings and Trade Expo.
He pointed out that demand has mostly remained strong, especially in the top job producing metro areas and is being upheld by mortgage rates near three year lows and the 14 million jobs gained since 2010.
‘The housing market continues to expand at a moderate pace in spite of the fact that home prices are rising too fast in some areas because of insufficient supply fuelled by the grossly inadequate number of new single family homes being constructed. Pending sales in recent months have remained stable and should support a modest gain in home sales heading into the summer,’ he explained.
Yun forecasts existing sales to finish 2016 at a pace of around 5.40 million which would be the best year since 2006 when it was 6.48 million. After rising to 6.8% in 2015, the national median existing home price is forecast slightly moderate to between 4% and 5% this year.
Yun remarked that the ongoing absence of first time buyers is the missing link to a full housing recovery despite it being a time when conditions are ripe for a larger share of them buying homes. ‘Job growth has been strong for multiple years, rents have soared in many areas and mortgage rates are historically low. Unfortunately, a multitude of factors such as increasing home prices amidst flat wage growth, the lack of available starter homes and repaying student loan debt is thwarting many young would be buyers,’ he told the meeting.
‘Spectacularly low mortgage rates mean today’s prospective home buyers are the luckiest in a generation but the unluckiest in actually becoming home owners because of the roadblocks hampering their ability to buy,’ added Yun.
Warren urged Congress to pass the Bank on Students Emergency Loan Refinancing Act, which would give a much needed break to student debt borrowers by giving them a chance to refinance their federal and private student loan debt at the same low rates offered to new borrowers in the federal student loan program.
Although contract signings nationally have held steady for several consecutive months, Yun said regional differences are beginning to appear in places where home prices have appreciated the fastest, specifically in parts of the South and in the West. Although data from the NAR confidence index shows that home buyer traffic is still strong, demand is somewhat weakening from a lack of available inventory and the subsequent affordability pressures it’s putting on a large segment of would-be buyers.
Yun believes that home builders need to significantly ramp up production so that more existing home owners can trade-up and list their home for sale. ‘Otherwise, inventory shortages will continue and demand could soften even more in some areas as a greater number of buyers are unable to find homes at affordable prices,’ he said.
Ultimately, Yun foresees housing starts ending up higher than last year’s 1.1 million, but still below the 1.5 million necessary each year to keep up with current demand. New home sales are likely to total 540,000 this year, which is only a little more than half the rate from the pre-boom years in the early 2000s.
Florida in particular is seeing the highest growth as overseas investors continue to take advantage of market, bringing a much needed boost to the area.