The National Association of Realtors reported last week that US existing home sales dropped more than expected in April, falling 2.5% to a seasonally adjusted annual rate of 5.46MM units. Down 1.4% nationally since April 2017, the existing homes sales account for about 90% of sales and declined the most in the Northeast region by 4.4%.
Obviously, this trend varies market-to-market, but as a national trend, this is alarming to real estate professionals. So, what factors could be contributing to this stagnant market?
The main reason is that the inventory is staggeringly low. Although the number of previously owned homes on the market increased by 9.8% in April, it is still down 6.3% overall from 2017 and the supply has continually declined for 35 consecutive months on a year-to-year basis. This is a problem for both buyers, who can’t find the exact home they are looking for and also for sellers who will have limited or no options when their home sells.
Lawrence Yun, Chief Economist for NAR, says “Buyer traffic continues to be higher than a year ago, the typical listing has gone under contract within a month so the reality, therefore, is that sales in coming months will not break out unless supply miraculously improves. This seems unlikely given the inadequate pace of housing starts in recent months and the lack of interest from real estate investors looking to sell.”
Another factor could be the slowly rising interest rates on new mortgages. Although it is still below 5% for a conventional, 30-year fixed mortgage, some potential buyers may be waiting to see if it will drop or at least level off as Freddy Mac is projecting a steady increase through 2019.
Additionally, even though home sales are declining, home prices are still rising. The median home price nationally rose 5.3% from 2017 to $257,900, which reflects 74 months of price gains in a row. In places like California, despite the low inventory and sluggish sales volume, the prices hit decade highs last year. But in other areas, these price increases are shrinking the buyer pools for sellers.
Other potential influences such as the tax reform plan, unemployment rates and Millennials (who are the largest pool of first-time homebuyers) having inadequate savings for down-payments, are not considered to be a major factor in the trend. One last possibility could be shortages in both materials and labor supply for new construction homes, which means that there are fewer housing starts and less inventory that is customizable.
“The housing market remains stuck in a holding pattern with little signs of breaking through. The pace of new listings is not catching up with what’s being sold at an astonishingly fast pace,” added Yun.
Here in Bucks County, the inventory of homes for sale was down 15.2% (2,898 units) in April 2018 vs. April 2017. In the meantime, sellers are continuing to raise the asking prices an average of 6.6% and settling at prices that are 3.5% higher than the previous year. The average days on market is 9 days lower than in 2017, but the number of completed sales was also down 6.4% from the same time last year.
If you are looking to buy or sell a home, please contact me today to get your home ready for sale or to get a Free, Comparative Market Analysis to see what your home is worth. See how I go “Above and Beyond the Sale” for my clients in Bucks and Montgomery Counties.Frank Dolski, Associate Broker and Relocation Specialist