May Housing News Summary
Sunk, But Not Underwater
Real estate web service Trulia released research finding that only 34% of U.S. homes have recovered the value lost during the housing bust and recession. While measures such as the Case-Shiller index show that house prices on average have recovered across the nation, the meteoric rise of home prices in San Francisco, Seattle, Denver and other markets obscures the much slower recovery experienced in other markets. Illustrating just how wide the gap is, Trulia reveals that fewer than 3% of homes in Las Vegas, Tucson or Fresno have recovered their full value, compared to over 98% in San Francisco and Denver. It is important to note that the percent of homes with values below their peak is not the same as homes which have negative equity. ATTOM Data Solutions reports that 9.6% of mortgaged properties had significant negative equity at the end of 2016.
Deep Dive Into Housing Starts
Housing starts declined in April compared to an already disappointing—and downwardly revised—March. However, breaking down the numbers reveals a less alarming situation. The overall decline was caused by a steep fall in multifamily starts. Multifamily starts and permits are highly volatile. Single-family starts rose very slightly compared to the month prior and remain 8.9% higher than last April.
Separating out the data regionally, the Northeast census region experienced a 37.3% decline in groundbreaking activity. This accounted for most of the national average decline. Excluding volatile multifamily starts, the Northeast experienced a 29.2% decline in groundbreaking activity compared to last month. This has been attributed to harsh weather in the region. In the South, single-family starts declined a modest 3.4% while the Midwest surged 19.4% and the West rose 9.1%. While builders face headwinds from rising costs and labor shortages, April’s sharp slowdown can also be attributed to weather effects and volatile data.
Spring Hasn’t Sprung
Spring is generally a strong time for home sales, but this year is off to a slow start as existing home sales slid 2.3% in April. Analysts don’t believe the decline is a result of a larger market slowdown, but rather that demand for houses has so outstripped supply that there aren’t enough homes for sale to sustain a higher pace. In other words, this season might see fewer home sales than expected simply because there aren’t enough homes available for purchase.
New home sales fared even worse, falling 11.4% compared to March, but not for lack of inventory. New home inventory has been growing and in April stood at a healthy 5.7 months of supply. Since the sales slowdown can’t be attributed to a lack of new homes for sale, analysts suspect that new home sales are suffering from their price point. While less-expensive existing homes are selling and appreciating quickly, new home prices declined in April and sales slowed. NAHB’s Robert Dietz suggests that new homes will have to come down in price to capture more sales. A downward trend in new home size suggests that new home buyers are demanding smaller, cheaper new homes. If trends persist, builders may have to figure out how to build lower-priced homes and more of them, while contending with rising costs and labor shortages.
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