The big challenge for the housing market today remains the lack of inventory, even though interest rates are rising, NAR Chief Economist Lawrence Yun said at his monthly press conference earlier this week in which he released the latest existing-home sales data from the association.
Rising interest rates are a concern, particularly in high-cost areas, but as of right now rates remain historically low and their impact is not yet showing up in the numbers, particularly in the Midwest and lower-cost areas. The national median rate today is 4.07 percent, almost 40 basis points higher than a year ago, when it was 3.68 percent. So what rates do in the future will be extremely important.
But, at least for today, the bigger concern remains too few homes available for sale, especially among homes in the lower price range. The lack of inventory is fueling rapid price appreciation, which Yun says is bad for the market. “This double-digit price appreciation is not sustainable and it’s not healthy. We need to tame the price growth.”
On a year-over-year basis, price growth last month was 13.5 percent on a national basis. In the West, the growth was even greater, about 20 percent. (Much lower growth in the Northeast, about 7 percent, is what brings the median down to the 13.5 percent.)
Yun says the market needs new construction more than anything, so he was disappointed that permits actually went down last month. Since the recovery began, construction has picked up a bit, but it’s remained well below where it needs to be to have a material impact on inventories, so that permits actually dropped last month is not good. “Very disappointing,” Yun said about last month’s report on housing starts.
On the whole, the upper-end market is doing a bit better than lower-priced segments, mainly because it’s the lower-priced segments that aren’t offering buyers a lot to choose from, so the sales rate for homes at about $100,000 or lower is just not growing at the same pace as higher-end homes.
On a positive note, distressed sales continue to fall and now comprise about 15 percent of the market, down from 26 percent just a year ago.
The picture that Yun painted is of a market that continues to improve despite the latest dip in sales and that’s not yet feeling a pinch from rising interest rates but is continuing to feel a pinch from the lack of inventory, which is driving too-rapid a rate of price appreciation.