US home sales bounced back in March, but can the gain last?
Apr. 22, 2015
WASHINGTON (AP) — U.S. home sales bloomed in March after a brutal winter, a sign of possible newfound momentum for housing.
Sales of existing homes jumped 6.1 percent last month to a seasonally adjusted annual rate of 5.19 million, the National Association of Realtors said Wednesday. The gains were solid enough to suggest that housing might be returning to stable footing after enduring a boom, a bust and a stubbornly tepid recovery over the past dozen years.
"We may be seeing the beginning of things getting close to what we would call a normal market," said Tom Lawler, a housing economist.
Still, it remains unclear whether March's robust gains can be sustained. Much of last month's sales growth came from the Northeast and Midwest — the areas that were hardest hit by winter storms and that were bound to recover as the weather warmed. It's possible that the March increase might amount to just a one-month blip.
That possibility makes next week's release of the Realtors' monthly report on pending home sales — which covers upcoming purchases — a crucial barometer of the industry's strength.
On top of that, there might not be enough homes on the market to meet buyer demand. A shortage of available homes would limit sales.
Nationally, the real estate market has just 4.6 months of supply, compared with six months in what economists consider a healthy market. The limited supply has caused prices to rise at a pace that hurts affordability. The median U.S. home price rose 7.8 percent over the past 12 months to $212,100. By contrast, average U.S. pay has risen just 2.1 percent over that time.
This sets up a tension between rising demand and limited availability of homes. To build on the current sales momentum, more houses must be listed, said Richard Moody, chief economist at Regions Financial.
"While improving labor market conditions have fostered sturdier income growth and first-time buyers are coming back... we nonetheless continue to harbor concerns that lean inventories could pull the plug on a potentially promising spring selling season," Moody said.
In states like California, the imbalance between the number of would-be buyers and homes for sale has become more pronounced. The supply of homes slid in March to 3.5 months.
That's giving sellers the edge in places like San Diego County, where many homes have been selling for very close to full asking price, said Patrick Marelly, an agent with Realty ONE Group in northern San Diego County.
"It's really more of a seller's market," Marelly said.
Some economists predict that the March upswing will lead to more listings of homes.
"We should not be worrying too much about tight inventories," said Brian Parker, an economist at Navy Federal Credit Union. "Rising prices and more buyers will bring an increase of sellers into the market, thus keeping inventory stable."
Real estate continues to recover from the crash that triggered the 2008 financial crisis and dragged down prices through 2012. But the sluggish pace of the nearly six-year recovery has kept wages from rising much, thereby putting homes out of reach for many as prices head higher. Many potential sellers are still "underwater" on their mortgages, meaning that they owe more than their home could fetch. This restricts the number of listings.
The March sales rate topped 5 million for the first time this year and suggests that sales should improve from the 4.94 million in 2014. Still, in a healthy market, sales would average roughly 5.5 million a year, economists say.
Home-buying improved in all four geographic regions last month. The largest gains came from the Northeast and Midwest, the areas where fierce weather in the prior two months delayed sales.
First-time buyers are also creeping back. They accounted for 30 percent of March purchases, up from 29 percent in February. Even so, first-time buyers usually compose about 40 percent of sales in a healthy market.
The sales figures reinforce other indicators that suggest a strengthening housing sector.
The real estate brokerage Redfin reported last week that sales jumped 10.1 percent in March compared with 12 months earlier. That's close to the 10.4 year-over-year increase tracked by the Realtors.
Redfin also found that the majority of homes in San Francisco sold for more than $1 million last month, while Denver homes were staying on the market for just six days. Yet fewer homes nationwide were listed for sale in March versus last year, likely limiting sales growth and lifting prices higher.
Still, job gains over the past year mean that there are an additional 3.1 million people working who have paychecks to spend. This has increased confidence within the real estate sector of a sales surge this year.
Relatively low mortgage rates should also help buyers. The average 30-year fixed rate was 3.67 percent last week, according to the mortgage giant Freddie Mac. The average has plummeted from a 52-week high of 4.33 percent.