Existing-home sales were up in June, which bode well for the market, but construction and low wages remain barriers to full recovery.
The third quarter of 2014 is already churning out good news for the housing industry, as rising inventories continue to help push overall supply towards a more balanced market, and sales are now on pace to reach 5 million for the first time since last October, according to the National Association of Realtors.
In the association’s most recent report, existing-home sales in June, including all completed transactions for single-family homes, townhouses, condos and co-ops, were up 2.6 percent to an adjusted annual rate of 5.04 million, up more than 100,000 since May. Despite the high rate of sales, levels still remain 2.3 percent below June 2013 levels.
While the national average tells the story of the general trajectory of the housing market, NAR’s report goes on to detail how the particular regions of the country are fairing in this post-recession recovery.
- Existing-home sales in the Midwest took a considerable 6.2 percent leap, the biggest gain of any region, but levels remain 2.4 percent below June 2013. Median price in the area is $177,900.
- Existing-home sales in the South raised a slight 0.5 percent, which put levels one percent above June 2013. Median price in the area is $192,600.
- Existing-home sales in the Northeast rose 3.2 percent, but levels remain 3 percent below June 2013. Median price in the area is 269,800.
- Existing-home sales in the West rose 2.7 percent, but levels remain 7.3 percent below June 2013. Median price in the area is $301,000.
Fundamentals are Improving
For the third month in a row, NAR’s existing-homes sales report posted positive gains, which bode well for not only the industry as a whole, but the individual regions monitored by the association.
“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,” Lawrence Yun, chief economist for NAR, says.
Yun goes on to point out that despite a brightening outlook, new construction and low wages remain weak points for the industry.
“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,” he says, adding that “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.”
How home sales and inventories perform over the next several months will help determine whether the nation is truly moving towards a market that’s both balanced and sustainable, but NAR President Steve Brown warns that rising FHA mortgage insurance premiums could deter prospective buyers, even those with above average credit scores, from entering the market.
“NAR recommends that FHA reduce high annual mortgage premiums for all qualified homebuyers and eliminate the insurance requirement for the life of the loan,” Brown says. “FHA’s HAWK program is a good start, but it should offer further reductions for participating home buyers.”