Inventory is tight right now and there’s no better sign of that than existing home sales, which fell quite a bit despite high demand. When demand is there and sales aren’t, there are a couple of possible culprits, both somewhat interrelated. Let’s touch on that before getting to the rest of the headlines.
The Big Story
Existing home sales fell 3.7% in March to a seasonally adjusted annualized rate of 6.01 million. Sales are still sky-high, up 12.3% since March of last year, but there are two things behind the recent dip.
To put these numbers in context, it helps to know that they’re released the month following the collection. Therefore, a release in April goes back to March for data. In the time frame this data was collected, mortgage rates were a lot higher than they are now. That has a limiting effect on budgets.
Compounding the potential budget problems caused by high rates is the fact that the median price of an existing home is now an all-time record high of $329,100. And if you’re looking for a single-family home, the median price was $334,500. Looked at in terms of the pace of annual appreciation, these are up 17.2% and 18.4%, respectively.
Even if a buyer has the money, they may be having trouble finding the home they want. It seems like we say this every month, but supply remains extremely thin. At the current sales pace, every existing home on the market at the time the report was released in April would have sold within 2.1 months. Without a doubt, it’s a seller’s market.
If you’re a buyer’s agent at this point, it’s important to have patience with your clients and do your best to keep them in a positive frame of mind. Meanwhile, if you’re the listing agent, there’s maybe never been a better time. Enjoy watching those offers roll in in record time. A thumb is definitely on the scales.
News You Can Use
This portion of the report was put together with assistance from Econoday.1 Let’s roll through some of the other headlines.
Consumer Price Index (CPI)
Consumer prices rose 0.6% in the month of March and have gone up 2.6% on the year. However, when food and energy were removed, prices were only up 0.3% and 1.6% since last March.
Of particular notice to real estate agents is the fact that shelter prices were up 0.3% and 1.7% annually. Although this is generally underperforming compared to other home price indexes, it is a big gain for this index.
One reason for this difference with other major indexes like the one from the Federal Housing Finance Agency (FHFA) and Case-Shiller is that unlike the other two which track home prices, this tracks rent and owner’s equivalent rent. Owner’s equivalent rent looks at how much it would cost an existing homeowner to rent the same amount of space.
Retail sales for the month of March were up 9.8% overall and 6.8% in core categories, largely boosted by the stimulus checks hitting the bank accounts of many Americans.
In the housing space we love so much, one really interesting number is that sales of building materials were up 12.1%. Sales of electronics and appliances were up 10.5%.
Housing Market Index
Builder confidence in the housing market was up a single point in April to come in at 83. Although it’s lower than the record of 90 in November, this underscores a belief in a tremendously strong future for housing.
Present sales were up 1 point at 88. Meanwhile, sales over the next 6 months went down 2 points at 81. However, traffic of prospective buyers walking through homes was up 3 points at 75.
New Residential Construction
Completed home construction was up 16.6% at a seasonally adjusted annual rate of 1.58 million. This is 23.4% above the pace in March 2020. Single-family authorizations were 1.099 million, up 5.3% on the month meanwhile, multifamily residences had 476,000 units completed.
Looking at housing starts, these were up 19.4% at 1.739 million, 37% above the same time a year ago. Single-family starts were up 15.3% at 1.238 million. Meanwhile, 477,000 multifamily units were started.
Finally, let’s touch on permits for future builds. These were up 2.7% at 1.766 million and 30.2% higher on the year. Permits for single-family homes were up 4.6% at 1.199 million. Meanwhile, 508,000 multifamily units were authorized in March.
New Home Sales
We covered a slowdown in the sales of existing homes extensively earlier, but sales of new homes were up 20.7% in March to settle at an annual rate of 1.021 million. However, this tends to be a very volatile index. As an example, sales numbers going back to December were up 151,000.
Because of this, it tends to make sense to look back at a 3-month index. This is up 2.6% at 959,000. Growth in sales of new homes is way up, but this is thrown off by the lockdown that started last March.
Some of the increase in sales was likely driven by discounts given by builders. Prices were down 4.4% to a median of 330,800, which is down from a recent high of $365,300 back in December. Supply also fell from 4.4 months to 3.2 months. While not quite as tight at the current pace of sales as the existing home market, the balance is still somewhat tipped in favor of builders.
Case-Shiller Home Price Index
Both with and without seasonal adjustment, home prices were up 1.2% in February. They’ve now risen 11.9% on the year in this index which is a rolling 3-month average of all purchase transactions in the U.S.
FHFA House Price Index
Prices were up 0.9% and 12.2% on the year compared to last February in this index. One of the biggest things to note in terms of differences is that this one isn’t a 3-month average and it’s also only based on conventional loans backed by Fannie Mae and Freddie Mac. However, what is noteworthy is that no matter which metric you use, prices are rising at a rapid pace.
Overall consumer confidence was up 12.7 points to 121.7. What should be really exciting for this group is that home buying plans for the near future are up.
Gross Domestic Product (GDP)
Overall economic growth in the second quarter was up 6.4% while personal consumption expenditures rose 10.7%. Within that, residential investment was up 10.8%. There just continues to be growth in the market.
Pending Home Sales Index
Pending home sales were up 1.9% to an index level of 111.3. Because this indicator tracks the number of homes with a purchase agreement in place, it’s considered a leading indicator for existing home sales. In general, if this number is higher in March, it usually means existing home sales are going to be higher in April.
The Federal Reserve chose to keep short-term interest rates at which banks borrow funds overnight at their current levels between 0% – 0.25%. Combined with the fact that they are still committed to buying $40 billion of mortgage-backed securities per month at this point, it’s helping keep mortgage rates low.
Beyond policy, the ups and downs of the economic recovery are also moving people in and out of the bond market. Lately, some more disappointing economic data on the employment side has kept people in bonds, which is good for mortgage rates. If you’ve got clients who are waiting out the market but otherwise ready to buy, you should consider telling them now is a good time to act.
The average rate for a conventional 30-year fixed mortgage with a 20% down payment and 0.6 points paid in fees, according to Freddie Mac, was down a couple of basis points to 2.96% last week. This has fallen from 3.26% last year.
Meanwhile, the average rate for a 15-year fixed mortgage fell a single basis point to 2.3% with 0.6 points paid. This is down from 2.73% last year.
Finally, with 0.3 points paid, the average rate on a 5-year treasury-indexed hybrid adjustable-rate mortgage (ARM) with 0.3 points paid was up 6 basis points to 2.7%, having fallen from 3.17% year ago.
Now, go forth and share this knowledge with your clients. If you like what you see, go ahead and check out Rocket ProSM Insight where you can sign up to get the status of your client’s loan process and assist them in the home buying process!
1 Important Legal Notice: Econoday has attempted to verify the information contained in this calendar. However, any aspect of such information may change without notice. Econoday does not provide investment advice, and does not represent or warrant that any of the information is accurate or complete at any time. Copyright 2021 Econoday, Inc. All rights reserved.
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