Taking Our Real Estate Pulse:
Joe Sefft is a Seattle-area homeowner who loves real estate. He’s a fictitious symbol of homeowners across the country. Recently Joe finds himself in a large hotel for a wedding celebration, and notices that the ballroom across the hall is hosting a national Realtors’ convention. His curiosity is piqued: How are home sales doing across the country?
“Nobody will miss me at the wedding if I’m gone for five minutes,” he rationalizes to himself, as he is drawn magnetically into the real estate conference. The current speaker, an authoritative-sounding woman in a striking canary-yellow outfit, is delivering some eye-opening facts to a packed crowd.
The market remains strong, although the performance of real estate tends to soften in autumn after the annual spring- and-summer sales surge, says the expert That pattern is reflected in August sales figures from the National Association of Realtors (NAR): After peaking in June, sales in August eased down to a seasonally adjusted annual rate of 5.33 million homes sold, or less than 1% higher than the same month in 2015 (5.29 million.)
After pretty spectacular sales activity last spring, she continues, the market at the moment is good but not great. But remember…sales typically take a dip in fall and winter.
One person who thinks sales could be doing better is Lawrence Yun, NAR chief economist. He says there’s just not enough sale homes to keep up with the demand.
After cresting in June, “sales in a majority of the country have inched backwards because inventory isn’t picking up to tame price growth and replace what’s being quickly sold.”
Low interest rates didn’t seem to help, adds Yun. “Hopes of a meaningful sales breakthrough as a result of this summer’s historically low mortgage rates failed to materialize because supply and affordability restrictions continue to keep too many would-be buyers on the sidelines.”
This almost total lack of inventory has long been a fact of life for Realtors in major West Coast markets like Seattle and San Francisco, the speaker says in a serious tone. Some of those markets have two months’ supply of homes for sale or even less. In fact, one reporter in Seattle says inventory is ‘insanely low.'”
Joe can restrain himself no longer, and blurts out a question. “If there are so few homes for sale, then why are the number of sales up? That seems contradictory.”
People realize they have to act quickly and decisively in a market where every decent house gets multiple offers, answers the speaker. As Lawrence Yun mentioned recently: “Buyers have few choices and little time before deciding to make an offer on a home available for sale. There’s little doubt there’d be even more sales activity right now if there were more affordable listings on the market.”
Homes More Profitable Than Stocks
The presenter added that scarcity may help explain why home ownership remains an excellent investment outperforming the stock market, according to the most recent version of the Beracha, Hardin & Johnson Buy vs. Rent Index. The index compares the profitability of buying a home vs. renting, while investing the equivalent of monthly mortgage payments into stocks and bonds.
In 15 out of 23 metro markets tracked by the Buy vs. Rent Index, home ownership was financially more favorable than renting.
The next speaker is a distinguished-looking, grey-haired gentleman who is introduced as one of the top producers in Washington State. He is showing a PowerPoint presentation on the West and Northwest regions, the most active markets in the country right now.
West Cools Down a Tad
The hot markets of California and Washington State cooled slightly in August, begins the speaker. After leading the nation in sales for much of 2016, performance in the Western markets gently subsided in August. Sales of existing homes declined 1.6% from July, but remained just a hairsbreadth (0.8%) ahead of August 2015.
If sales volume stayed consistent in the West year-over-year, prices in the region showed a lot of growth: The overall median price in the West was $347,400, or 9.2% higher than in August 2015, according to NAR.
In super-hot Seattle, high prices and low inventory have come into stark relief. Prices are soaring out of the reach of young families and first-time buyers, he continues. “In my experience, there are plentiful buyers in the Seattle area in search of modestly priced homes.”
Plus, “the competition for each property is simply staggering,” he adds. He cites a recent open house for a Seattle condo which drew more than 100 visitors in a single day.
In the three-county area of greater Seattle, tech workers are the biggest buyer group, and many of their parents are buying homes in the region to live near their children.
Elsewhere in western Washington State, prices were higher in the 23-county area outside Seattle represented by the Northwest Multiple Listing Service. The median home price was $350,000 in August, an 11% improvement over the year-earlier figure.
A Universe Of Its Own
California, as usual, remains a strong market, according to the distinguished-looking speaker. The median price of a home in the Golden State rose to $526,500 in August, a seven- year high, while sales increased 2.2%
GLOBAL ECONOMY SLOWLY IMPROVING
“Going forward, the global economy is expected to gain gradual momentum, boosted mainly by stronger growth in the U.S. economy and improving conditions in battered emerging economies. The U.S. economy is foreseen strengthening in the second half (of 1026), buoyed by solid private consumption and a bounce- back in inventories. Moreover, the difficult economic conditions that key emerging markets, such as Brazil and Russia, experienced last year and in the first half of this year are gradually abating. Meanwhile, the Chinese economy stabilized in the second quarter…. However, the recent impulse to growth does not look sustainable and economic activity is set to slow in the coming quarter.” – Focus Economics over the previous year.
As for San Francisco, he adds, the city continues to live in a universe of its own, with median prices (are you sitting down?) of $1.36 million, a 2.9% increase over the same month in 2015. Audible gasps were heard in the audience.
Demand also remains high in Los Angeles, where the median price was $473,950 in August, or 6.2% higher than the year-earlier figure, the speaker continues. In San Diego, the median price was a hefty $560,000, or 4.5% better than the previous August.
West Dominates the Best Cities List
Despite those price increases, California is not entirely beyond the reach of first-time homebuyers in price, even if availability remains iffy, according to CAR economist Leslie Appleton-Young. She breaks the market down into different price groups.
With the number of active listings in the lowest price tier sinking more than 27% from the previous year, the median home price of this segment of the market was pushed up from $185,000 last year to” $205,000 this August. The next-higher price segment, she adds, has risen from $300,000 to $320,000.
Western cities overall, in fact, are dominating the list of America’s most active real estate markets,” the speaker points out. He quotes Jonathan Smoke, the NAR economist who compiled the most active-markets list, based on the number of Web views and other criteria.
Here’s the list, in descending order: Vallejo, CA; Dallas; Denver; San Francisco; Stockton, CA; Columbus, OH; San Diego,; Santa Cruz, CA; and Santa Rosa, CA.
Nationally, homes spent a median 36 days on market in August, which is considerably less time than a year-earlier figure, when sales took a median 47 days.
NAR sums it up: This market is paradoxical. Despite the high sales activity, home ownership in America is at a 50-year low.
An Important Question
Again, Joe can’t keep himself from blurting out another question. If so
HOME MARKET IN ‘BUY TERRITORY’
“The U.S. housing market is moving deeper into “buy territory,” which indicates that the majority of housing markets remain a sound investment, according to a newly released national index by Florida Atlantic University and Florida Inti University. “…Recent trends in the Buy vs. Rent Index signal that ownership remains an excellent investment for the majority of Americans,” says Ken Johnson, real estate economist. The Beracha, Hardin & Johnson Buy vs. Rent Index shows that owning a home trumps renting a comparable property as well as investing rent savings in a portfolio of stocks and bonds.” -Florida Atlantic University and Florida International University few homes are for sale and prices continue to rise, how can homes be selling faster this year as compared to 2015?
The answer is that demand remains high. That’s also why home builders are starting to build more homes, concludes the speaker.
Sales Numbers Shrink in Chicago
The next presenter is a pleasant-looking, crew-cut man who speaks with a pronounced Chicago accent. He’s the expert on the Midwest. Sales volume in the region slipped a tiny bit (0.08%) in August, if still 0.8% higher than a year ago. But if sales activity hasn’t changed much, prices sure have: The median price in the Midwest has grown 5.5% year-over-year to $190,700. Why aren’t more sales happening in the Midwest? The Chicago-accented Realtor has a theory: Sluggish job creation is one possible reason for the tepid performance.
Inventory issues are also having a negative impact on Chicago in particular and on Illinois as a whole, according to the crew-cut Realtor. Both the Chicago area and Illinois as a whole report rising prices and declining sales, hinting at inventory issues. In greater Chicago, he adds, median prices rose 5.8% in August to $233,000 while transaction volume sank 7.3%. In Illinois as a whole, median prices climbed 5.8% to $199,000.
Next on the podium was a short, dark haired woman who owns her own real estate brokerage in New York. She’s the speaker with expertise on the Northeast: Our region was the top performer in the nation in August, she says confidently. Sales of existing homes in the Northeast climbed 6.1% from a year ago. The median price in the Northeast was $274,100, which is 0.8% above August 2015.
New York State was particularly impressive in August, the New York Realtor adds. Statewide, the volume of closed sales increased 8.1% over the same month in 2015. The median price in the Empire State, she adds, was $257,291, a healthy 3.8% increase year-to-year.
PRICES RISE AND HOT MARKETS GET HOTTER
“Home prices will continue rising at a steady clip nationally through 2016, before picking up even more next year in most of the country because of the low inventories. Robust gains have pushed prices in cities such as Portland, Seattle and Denver above the peak reached during the housing bubble a decade ago…(D)ouble-dig- it growth in Portland and Seattle may continue for a while yet. Price growth appears to be cooling in San Francisco and Denver, where prices had been rising at double-digit rates for an extended period.” – Kiplingers
Buyers Act Quickly in NY State
At the same time, New York State was not immune from its own inventory problems. The speaker quotes Duncan R. Mackenzie, chief executive of the New York State Association of Realtors. “The persistent decline in the number of homes available for sale is starting to influence the market as evidenced by the growth in selling price and the slowing of sales. With fewer choices available, buyers are willing to pay more when they find the right home.”
The final presentation is given by a tall, deep-voiced man from Atlanta. He says pending home sales in the South were okay, but not great, with August sales falling 2.7% from July while still remaining 0.9% higher than the year before. Again, price appreciation was something to crow about, with the median price in the south rising 6.7% year-to-year to $209,700.
The Greater Atlanta area followed similar trend lines: In August, sales figures looked peachy, with a 6% increase from the year-earlier figure to a median price of $250,000. Sales volume, however, fell 5.5% year-to-year.
Back to Our Story…
While meditating on this last point, Joe heard his wife, Myrna Sefft, cutting through the din of the ballroom. “Joe? Are you here? Oh, when I find that man…!”
“I’m sorry, hon,” Joe says contritely as he approaches his wife. “I was just learning about first-time homebuyers and the difficulty they’re having in a market with such low inventory and strong buyer competition.”
Myrna is sympathetic but takes the long view. “There are lots of nice places for young families, and hopefully they’ll all find one. Now, we need to get back to the wedding. People are asking for you.”
“If mortgage rates continue to remain relatively Iow and job growth continues, as most forecasters expect, then home purchases are likely to rise in the coming, year,” Dr. Frank Nothaft, chief economist, CoreLogic.