After several months of strong sales gains, the housing market encountered a month-over-month drop in existing home sales due to limited supply of homes for sale. Sales of existing homes dropped 7.1% month-over-month, according to the latest release from the National Association of Realtors (NAR). The market did squeeze out a 2.2% gain compared with February 2015.
The source of this drop, according to Lawrence Yun, NAR’s chief economist, was not that Americans didn’t want to buy homes; it was that they couldn’t find suitable homes to buy.
“The main issue continues to be a supply and affordability problem,” he said. “Finding the right property at an affordable price is burdening many potential buyers.”
Americans are eager to buy homes
The good news is that consumer sentiment about home buying, buoyed by an improving economy and falling unemployment rates, has been positive, according to a NAR survey of American households released last month. Three quarters of Americans believe that it’s now a good time to buy a home.
This is despite a significant increase in the price of a typical home lately. Nationally, the median home sold in February cost $210,800, 4.4 % more than it did 12 months earlier.
However, Americans are not so eager to sell
Only 56% of home owners told NAR that they thought it was a good time to sell. The other 44% thought they could get a better price in the future, contributing to the tight supplies of homes for sale that plague some markets. Housing is in short supply in coastal California, Seattle, Washington, D.C., New York, Boston, and many other places. Even some markets that are historically steady, such as Chicago, are experiencing inventory problems. Nationally, there’s just a 4.4 month supply of homes for sale at the current sales rate.
The nation’s home builders have geared up to meet demand. Housing starts jumped 31% in February compared with February 2015 to an annualized rate of 1.178 million units, but buyers still outnumber sellers in many areas.
That has resulted in home prices that have grown faster than incomes. Luckily for consumers, mortgage rates remain near historical lows, making financing a home purchase much more affordable. The average 30-year fixed rate mortgage went for about 3.66% in February.
Millennials want the same homes their parents owned
NAR’s survey revealed something that industry insiders knew all along: Americans still cling to their desire for that big house in the suburbs. Three quarters of renters said they want to purchase a single-family home.
“The American Dream for most consumers is not a 500-square-foot condo in the middle of the city, but instead a larger home within close proximity to the jobs and entertainment an urban area provides,” said Yun. “While this is not a new discovery, supply and demand imbalances and unhealthy levels of price growth in several metro areas have made buying an affordable home an onerous task for far too many first-time buyers and middle-class families.”
