Sales of existing homes in the U.S. moved at the fastest pace in nearly a decade in May, according to the National Association of Realtors. Properties in five of the hottest markets sold in less than 30 days.
The National Association of Realtors (NAR), released their existing homes sales data for May this morning. Sales of existing homes, which includes single family homes, townhomes, condos and co-ops, was up 1.8% to a seasonally adjusted annual rate of 5.53 million – that’s up 4.5% from last year and is the highest annual pace since February of 2007. All regions saw strong sales except the Midwest.
NAR’s chief economist, Lawrence Yun said, “This spring’s sustained period of ultra-low mortgage rates has certainly been a worthy incentive to buy a home, but the primary driver in the increase in sales is more homeowners realizing the equity they’ve accumulated in recent years and finally deciding to trade-up or downsize.”
He added that while first-time buyers are still struggling to enter the market, repeat buyers using the proceeds from the sale of their previous home as their down payment are making up the bulk of home purchases right now. He expects these repeat buyers will continue to buy over the summer at the current pace.
Spring demand coupled with low inventory is driving prices up to an all time high in some of the most desirable metros.
Total inventory at the end of May rose 1.4% to 2.15 million existing homes available for sale. Even though there was a bit more inventory on the market than the prior month, it was still 5.7% less than last year at this time.
There’s currently a 4.7 month supply at the current sales pace. 6 months inventory is considered a healthy number, so we are still well below that.
Low supply with high demand translates into higher prices. The median existing home price for all types was up 4.7% from May to $239,700. This marks the 51st consecutive month, year-over-year price gains.
I was interviewed at the NASDAQ building this morning to comment on today’s data, and I said to them – as I’ve said on every interview – there is no such thing as a national housing market. It’s useless to average out the sales prices of homes nationwide – especially when you include condos and town homes and mega-mansions from Florida to California to Alaska and North Dakota.
In reality, the country is very divided. There are extreme seller’s markets and painfully bleak buyer’s markets across the U.S.
It’s important to remember that a seller’s market is the time to sell. Properties move quickly at historically high prices because supply is low and demand is high. It’s hard to get a deal because there’s so much competition.
On the other hand, it’s the time to buy in a buyer’s market. Properties move slowly because there’s more supply than demand, driving prices down. You can get great deals in those markets, as long as other metrics are in place – like job and population growth along with affordability.
According to NAR’s report, the hottest seller’s markets in May were:
1 – San Francisco/Oakland
2 – Seattle/Tacoma
3 – San Jose/Santa Clara
4 – Denver
5 – Vallejo
Properties in these markets sold at the fastest pace – in just 25-30 days.
There is simply not enough inventory available in highly desirable markets because building came to a near complete stop during the recent housing crisis. Additionally, since then builders have had a tough time getting back up and running.
Most highly desirable areas have very stringent permitting processes, but it’s become even more difficult for builders to bring on new inventory. Cities are increasing the cost to get permits. Plus new regulations and red tape are causing further delays, making it more and more expensive to build. It is simply cost prohibitive to produce affordable housing – when it’s exaclty what’s desperately needed in these areas.
San Francisco, Seattle and Denver also all have land and water restrictions (you can’t build on water or mountains), so the only way to build is to find infill or move out to the suburbs.
We’ll likely see prices continue to rise in these hot seller’s markets – until affordability becomes totally out of whack. Then things will reverse, as they always do.
The good news is that rising prices encourages more move up buyers to sell their current home and use the equity as a down payment on a smaller or larger home. This could open up some inventory. Additionally, builders should be up to speed and able to provide more inventory by 2017.
If a recession hits at the same time that more inventory comes to market, we would definitely see a slow down in sales and a drop in home prices. Higher interest rates could also pop any real estate bubbles.
The number of first time home buyers dropped to 30% due to higher prices, tighter lending, and debt obligations, such as student loan debt.
All cash buyers were down slightly, along with investors, according to NAR. That is likely due to the volatile stock market and global uncertainty that has some investors sitting on the sidelines.
In buyer’s markets, home prices are still very affordable. Judicial states like Florida, New Jersey, Ohio, Indiana and Illinois continue to have a backlog of foreclosures, which has kept prices low and inventories high. These are the main areas where investors can still find yield in buy & hold real estate today, but that is changing rapidly as home prices rise even in tertiary markets.
While it’s often said that real estate is about “location, location, location,” NAR Chief Economist Lawrence Yun told reporters that “affordability, affordability, affordability” is the market’s new mantra.
My mantra has been “market timing, market timing, market timing.” Right now the timing is right to scoop up affordable properties in up and coming markets with job and population growth.