Ringing In 2015 With Revived Existing-Home Sales
Existing-home sales surmounted an annual pace of 5 million sales for the sixth time in seven months despite the low inventory conditions. Median home prices for 2014 rose to their highest level since 2007, but total sales fell 3.1 percent from 2013. A year ago, December sales were just 3.5 percent higher and are now above year-over-year levels for the third straight month.
Lawrence Yun, Nar chief economist says that the second half of 2014 showed encouraging signs of activity which led to a pick-up of sales at the year’s close:
Home sales improved over the summer once inventory increased, prices moderated and economic growth accelerated. Sales were measurably better in the second half – up 8 percent compared to the first six months of the year.
At the end of December, total housing inventory dropped to 1.85 million existing homes available for sale, decreasing 11.1 percent. That’s a 4.4-month supply at the current sales pace – down from 5.1 months in November. Yun explains the effects of a contraction in the housing supply on the future:
A drop in housing supply in December raises some affordability concerns in the months ahead as minimal selection and the potential for faster price appreciation could offset the demand from buyers encouraged by a stronger economy and sub-4 percent interest rates. Housing costs – both rents and home prices – continue to outpace wages and are burdensome for potential buyers trying to save for a downpayment while looking for available homes in their price range.
In the wake of home prices exceeding wages, first-time home buying could suffer. But NAR President, Chris Polychron is optimistic about the Federal Housing Administration’s plan to reduce annual mortgage insurance premiums that will most assuredly have a positive impact on first-time buyers once it goes into effect on January 26:
NAR is a strong supporter of the FHA and its vital role in the mortgage marketplace for homebuyers. Realtors support responsible lending to qualified borrowers and the move to lower premiums will enable more buyers to enter the market while continuing to protect taxpayers from the risky lending practices that led to the housing crash.
After surveying the temperature of the housing market, it looks good for the next six months and several factors could account for this improved outlook, including a growing jobs market, improving economy, record high stock market, rising consumer confidence, accelerating rents, mortgage rate decreases and additional inventory. On the opposing end, there are factors that negatively impact the housing market such as limited inventory that postpones home purchases, low levels of new home construction, and mortgage lock-in that delays the decision to move. The question for 2015 seems to be the overall housing shortage potential. There has been limited housing production for the last 7 years, so there’s a shortage of apartments as well as single-family homes. If this continues there will most certainly be a shortage of inventory when spring home buying season returns. As a result home prices may rise too quickly.