A report April 11 from Zelman & Associates said it the analyst firm now expected a 5 per cent drop in sales of previously owned homes in America for 2014, to a seasonally adjusted annual level of 4.8 million units. At the start of this year, the firm had forecast nearly a 6 per cent gain from last year to 5.4 million, from last year’s 5.1 million units.
The forecast calls for sales to increase modestly in 2015 and 2016, to 4.9 and 5 million units respectively, down from earlier forecasts of 5.7 and 5.9 million units.
Forecasts for new home sales suggest 505,000 units this year, up 17 per cent from last year. The firm’s estimates of new home construction were mostly unchanged.
Part of the reason for the reduction is a hit from higher mortgage rates last summer, which combined with rising prices led to a slowdown in demand last autumn that has carried over into the 1Q.
As well, large declines in the supply of foreclosed and other distressed homes for sale mean that there’s less to buy, holding back re-sales, said the report. The housing rebound that took hold over the last two years came largely as bargain seekers — investors and traditional owners alike — took advantage of low prices on discounted homes.
Zelman estimates that the supply of bank-owned homes and other distressed homes for sale is down by nearly 20 per cent from a year earlier, which could cut around three to four percentage points from annual growth in existing home sales.
US Home Sales, Inventory
Overall, housing’s contribution to the US economy is still expected to increase 15 per cent this year, down only slightly from the firm’s earlier forecast of 17 per cent growth, a drop attributed to the reduced existing home sales forecast. So far, home prices have held up, which is a sign that “a lack of inventory is at least partly responsible for the weaker unit numbers,” the report said.
As if in confirmation, RealtyTrac Thursday released its US Home Equity & Underwater Report for 1Q 2014, which shows that 9.1 million US residential properties were seriously underwater — where the combined loan amount secured by the property is at least 25 per cent higher than the property’s estimated market value — representing 17 per cent of all properties with a mortgage in the 1Q.
The 1Q negative equity numbers were down to the lowest level since RealtyTrac began reporting negative equity in 1Q 2012. In 4Q 2013, 9.3 million residential properties, representing 19 per cent of all properties with a mortgage, were seriously underwater and in 1Q 2013 that figure was 10.9 million residential properties, representing 26 per cent of all properties with a mortgage. The recent peak in negative equity was 2Q 2012, when 12.8 million US residential properties, representing 29 per cent of all properties with a mortgage, were seriously underwater.
Fewer distressed properties had negative equity in 1Q, with 45 per cent of all properties in the foreclosure process seriously underwater — down from 48 per cent in 4Q 2013 and down from 58 per cent in 1Q 2013.
Another 8.5 million properties were on the verge of resurfacing in 1Q, with between 10 per cent negative equity and 10 per cent positive equity. This segment represented 16 per cent of all properties with a mortgage in 1Q. That was compared to 8.3 million properties representing 17 per cent of all properties with a mortgage in 4Q 2013.
Conversely, the share of foreclosures with positive equity increased to 35 per cent in 1Q, up from 31 per cent in 4Q and up from 24 per cent in 3Q 2013.
“US homeowners are continuing to recover equity lost during the Great Recession, but the pace of that recovering equity slowed in the first quarter, corresponding to slowing home price appreciation,” said Daren Blomquist, vice president at RealtyTrac. “Slower price appreciation means the 9 million homeowners seriously underwater could still have a long road back to positive equity.”
Real Estate Activity, US
Elsewhere, realtors told MNI News Thursday that in some markets, tight inventory over the past year has driven prices high enough to return homeowners with negative equity back to positive territory, and that’s nudging market supply a little higher. In others, would-be sellers fear they will not be able to find a replacement home, so they are sitting on the sidelines for now. Some markets have seen new contracts rise a bit in March, but the number of sales that closed in the month was down, as harsh weather clipped listing and hunting activity in January and February, agents said.
Prices are closing in on their pre-recession peak, according to MNI News. Many listings are selling at asking price or a little above.
A real estate broker who manages a team of 186 agents in the St. Louis, MO, area said his March closings and revenues posted 15 per cent lower than a year ago, but new contracts climbed 7 per cent.
For it’s part, Alex Carrick of Reed Construction Data said also Thursday that according to the housing price index calculated by the Federal Housing Finance Agency (FHFA) – based on homes with mortgages backed by Fannie Mae and Freddie Mac – current home prices are on a par with May 2005.
The FHFA’s index is up 7.4 per cent year over year, but still 8 per cent below its April 2007 peak, said Carrick.
S&P Case-Shiller’s 10-city and 20-city composite indices are clawing their ways out of nearly bottomless pits, but they are only back to mid-2004 levels.
The National Association of Realtors (NAR) – the third major source of US existing home prices – is reporting a 9.1 per cent increase in median values this year.
In its latest March release, the NAR further points out that the recovery in US home prices over the past three years has restored US$4 trillion in wealth to American home owners, explained Carrick.