Tight market governs US housing recovery

Douglas Gillison –

The US housing market, a key economic driver, is exceedingly tight, with supply struggling to meet demand as the sector recovers a decade after the housing crisis, analysts say.
But persistent and pent-up demand among would-be homeowners could spur builders to boost construction, helping to ease pressure on the market for new homes.
Inventory of homes for sale has remained stagnant even while the pace of sales returns to pre-crisis levels.
“What I hear from realtors pretty much across the country is that if they had more inventory they could make more sales,” Lawrence Yun, chief economist at the National Association of Realtors, said.
Home sales jumped in January, with sales of existing homes rising 3.3 per cent, the fastest monthly rate since early 2007, while sales of new homes increased nearly four per cent, with buyers in the Northeast snapping up the largest volume of single-family houses in nine years.
While demand has been bolstered by steady job creation and a pickup in wages in 2016, that exuberance has not translated into an increased supply of houses available.
Inventory for existing homes has fallen for 20 months in a row, and the number of homes for sale for every 1,000 households fell 47 per cent between January 2008 and January of this year, according to figures from the residential real estate website Trulia.
As the housing market continues to reemerge from the 2008 financial crisis — precipitated by a housing bubble and mortgage crisis — prices are recovering.
The median price for a new home rose 34 per cent between January of 2008 and January of this year. Existing home prices have risen for 59 straight months, hitting a median of $228,900 in January — up 7.1 per cent over the same month last year.
And 30-year mortgage rates also have moved sharply higher since the end of 2016, rising to 4.17 per cent in February, up half a point year-on-year, according to government-sponsored mortgage agency Freddie Mac.
NAR’s Yun said tight supply could see sales of existing homes flatline in 2017 after hitting an annual rate of 5.7 million units sold in January. “That may actually be the yearly high,” he said.
Compared to the population, the pace of new home construction currently is at about 64 per cent of its 50-year average and rising slowly, according to Trulia. Analysts point to a range of reasons to explain the drop off in housing inventory.
Yun noted that zoning, regulations and a tight labour market can create barriers for construction, while homeowners may be reluctant to sell, believing a peak in prices is yet to come.
Investment firms bought up a large share of the supply of existing homes in the wake of the financial crisis, converting many into rental properties, keeping suitable single-family houses off the market, he added.
“Apparently they’re unwilling to unload because rent growth is very profitable and they just want to ride it out,” he added.
Builders may also feel that rental is where the money is. December saw a stunning 54 per cent jump in the construction of multi-unit buildings, although that measure can be volatile.
The hot rental market is fuelled in part by the fact many people are unwilling or unable to borrow to buy a home in the wake of the crisis.
The share of people aged 18 to 34 living with parents or relatives has been steadily rising since the late 1980s and is now approaching 40 per cent, according to Trulia.
As those millennials get jobs and move out in a growing economy, they are likely to form a new cohort of renters before buying their first homes.
Ralph McLaughlin, the chief economist at Trulia, said the construction sector was still suffering from low capacity after the housing crisis. Furthermore, some housing markets are suffering “price spread,” where the gap between the costs for starter, mid-range and luxury houses grows, making it harder for home-owners to trade up. — AFP