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There has been
much speculation about what is causing the falling sales numbers in the most
recent Existing Home Sales Reports (EHS) from the National
Association of Realtors (NAR). Some have claimed that rising interest rates
have scared buyers out of the market. Others have claimed that consumers are
just losing confidence in the housing recovery fearing a new bubble may be
forming. We want to look at the validity of these two assumptions.
ASSUMPTION: Rising interest rates have forced buyers back onto the fence.
Evidence offered up by those in this camp comes directly from the EHS Report
from NAR. Three of the last four reports revealed that sales were below sales
from the same month the previous year.
THE REALITY: Though it is true year-over-year sales have fallen nationally,
a closer look at the report reveals major regional differences. Sales in the
West Region are down 10.7% versus the same month last year. Sales in the
Midwest Region are also down but by less than 1%. The Northeast Region is up
3.2% and the Southern Region is up 4.6%.
If the issue is interest rates,
why is one region virtually unchanged and two of the remaining three regions up
in sales? We don’t believe rates are the challenge.
CONSUMER CONFIDENCE in
REAL ESTATE is ERODING
ASSUMPTION: The pace of the recent price increases has caused many to fear
the emergence of a new housing bubble. Similar to the first assumption,
evidence offered up by those in this camp comes directly from the less than
enthusiastic EHS Reports from NAR.
THE REALITY: As we mentioned before, sales in the Midwest Region are down
but by less than 1%. The Northeast and the Southern Region have both shown
increased sales as compared to the year before. Are only the consumers in the
Western Region afraid of a possible bubble forming?
The fear of a new housing
bubble is vastly overstated. Forty states have not yet returned to home values
they experienced seven to nine years ago. Nineteen of those forty states still
have home prices 15% or more below peak prices. We believe home values will
continue to increase but just at a slower rate of appreciation.
It is not just us that believe
this is the case. The over 100 housing experts recently surveyed by Pulsenomics
revealed that they believe prices will continue to appreciate at historical
annual numbers (3-4%) for at least the next five years.
THEN WHAT IS THE
If the lack of sales is not the
result of increasing interest rates or decreasing consumer confidence, what
actually is happening? We believe it can be broken down to three words: LACK of
Inventories of foreclosure and
short sale properties are falling like a rock in the vast majority of regions
across the nation. These two categories of homes have driven the market for the
last few years. As foreclosures and short sales sell, they are not being
replaced because the economy has gotten better and more families have regained
control of their finances. All fifty states have seen a decrease in the number
of homeowners who are seriously delinquent on their mortgage payments with
thirty nine states seeing the number shrink by over 20%.
This inventory has not yet
begun to be replaced by the non-distressed properties in the country. Just this
month, NAR revealed that the months’ inventory of homes for sale has dropped to
only a 4 month supply. A normal market has between 5-6 months’ supply.
This is the main reason home
sales are declining in certain regions – there are just not enough houses for
With the economy improving and
with homeowners gaining back some equity they lost when prices fell, we believe
there will be many homes coming unto the market this spring. A recent survey
revealed that 71% of homeowners are at least considering selling their home in
If you are thinking of selling,
beating this increased competition to the market before spring might make sense
– and might enable you to get the best price possible for your home.
Provided courtesy of Claudia Hansen CalBRE 01155245 Rodeo Realty Brentwood
Thanks to the KCM Blog