Existing home sales rose to a 5.45 million-unit rate in April, after being revised up for the month of March. The largest percentage gains in home sales were in the Midwest, which is also the most affordable market. Sales in the Midwest are at their highest level since December 2006. Sales in the West and the South declined. Most of that shortfall in sales in those regions can be attributed to a drop in the supply of homes for sale in the market. The supply of homes for sale on the market is still more than 3% below levels from a year ago.
Homeowners who were underwater, unemployed, or all of the above, spent less money on repairs and upgrades than homeowners during previous expansions. This, coupled with uneven housing appreciation – home values in urban centers and nearby suburbs skyrocketed, while home values in exurbia languished – left more homeowners unwilling or unable to list than in the past. Add to that, the escalating construction costs, and the supply of entry-level homes is particularly scarce.
This is at the same time that first-time buyer demand is returning. First-time buyers made up 32% of buyers, as an improving job market, particularly for college grads, is allowing older millennials and some Generation X households to enter the market.
In response, bidding wars for move-in ready properties are common, and prices in the overall market are accelerating. Median home values for single-family homes rose 6.2% in April from a year ago, an acceleration over the last two months, and several times the pace of growth in average hourly earnings.
We have also seen a move into the condo market, which had been dormant earlier in the cycle. This represents a more affordable alternative to a single-family home to buyers in urban markets.
Bottom Line: Housing continues to heal but unevenly. Hurdles to new construction are real problem and adding to the upward pressure on prices along with the legacy effects of the crisis. The ongoing firming in home values will show up as higher inflation down the road and add to the Fed’s checklist for a rate hike in June.