The Mortgage Corner
The NAR just reported total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, climbed 2.6 percent to a seasonally adjusted annual rate of 5.04 million in June from an upwardly-revised 4.91 million in May. Sales are at the highest pace since October 2013 (5.13 million), but remain 2.3 percent below the 5.16 million-unit level a year ago, due partly to inventory shortage, and affordability problems.
Total housing inventory at the end of June rose 2.2 percent to 2.30 million existing homes available for sale, which represents a 5.5-month supply at the current sales pace, unchanged from May. Unsold inventory is 6.5 percent higher than a year ago, when there were 2.16 million existing homes available for sale.
NAR chief economist Lawrence Yun says “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. This bodes well for rising home sales in the upcoming months as consumers are provided with more choices,” he said. “On the contrary, 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.”
The most important statistic is the inventory of existing homes for sale, and other agencies show higher inventory levels. For instance, though the NAR reported that inventory was up 6.5 percent year-over-year in June, Housing Tracker shows inventory up 15 percent year-over-year in July, and Trulia chief economist Jed Kolko has seasonally adjusted the inventory, which is up some 10.9 percent, said Calculated Risk.
Yun also noted homebuyers are having affordability problems, in 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,” he said. “However, the lack of wage increases is leaving a large pool of potential homebuyers on the sidelines who otherwise would be taking advantage of low interest rates. Income growth below price appreciation will hurt affordability.”
Given the political realities at present, it looks like the only way to boost incomes—and housing sales—is to creep closer to full employment when employers will have to bid up wages. We know Fed Chairman Yellen is all for boosting employment, which is why she is resisting pressures to raise interest rates prematurely, when the real unemployment rate for the long term unemployed and part time workers is still 12.1 percent.
And that may not happen until mid-2015, at the earliest. So look for continued slow growth in housing sales (and lower interest rates) until next year, if Lawrence Yun and Janet Yellen are correct in their forecasts.
Harlan Green © 2014
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