The first quarter of 2017 displayed the best quarterly current sales in precisely a decade, with sales of 5.62 million, with expectations of finishing at nearly 5.64 million – the best since 2006 (6.47 million) – which is a full 3.5% above 2016 sales figures. As a result of substantial price increases in several metro areas, the national median existing-home price is forecast to jump nearly 5% this year.
“The housing market has exceeded expectations…despite depressed inventory and higher mortgage rates,” stated Lawrence Yun, Chief Economist for the National Association of Realtors® (NAR). Yun accredited healthy job gains over several years as well as “improving household confidence” to the quickened sales pace and added expectations that sales will hit a decade-high in 2017.
Said Yun, “The combination of the stock market being at record highs, 16 million new jobs created since 2010, pent-up household formation and rising consumer confidence are giving more households the assurance and ability to be homebuyers.”
Despite the good news that sales are at a decade high level, inventory supply and home price affordability along with modest economic growth threaten to suppress the homeownership dream. The culprits? Listings in the lower- and mid-market price range are still meager and continue to sell rapidly, leaving homebuyers without much available to them in the market that they can afford.
Analysts share little doubt that first-time home buyer involvement would improve and the homeownership rate would rise if there was increased inventory. With many looking to the housing construction industry to help resolve the inventory problem, the challenges of labor shortages, rising construction costs and tight construction lending aren’t helping the situation. “We have been under the 50-year average of single-family housing starts for 10 years now,” NAR’s Yun commented.
Housing construction has been irregular up to now in 2017, but expectations are that housing starts will climb an additional 8.4% to 1.27 million. New single-family home sales are likely to hit 620,000 in 2017, increasing 8.4% from 2016, though notably still inefficient to cover the inventory shortage.
While Yun remains optimistic based on “a very strong first quarter [that] sets the stage for a modest sales increase compared to last year,” he adds that, “prices are still rising too fast in many areas and are outpacing incomes. That is why housing starts need to rise to alleviate supply shortages. There will be more sales if there’s a meaningful bump in new and existing inventory.”
In the mid-year forecast, Yun agrees that the rising interest rate environment is the new norm as the Federal Reserve gradually reduces its balance sheet. Like many others, he foresees two more short-term rate raises by the end of 2018.