A miasma of ennui appears to have enveloped the housing market over the past month or so, at least if we go by the national numbers. Sales (and starts) have gone south recently after heading north to start 2017.
The unexpected decline in new-home sales induced a spat of brow-furrowing this past week. Sales dropped 11.4% to 569,000 units on an annualized rate in April. The drop counterbalanced the positive sales growth we saw in March and February.
What’s more, meaningful discounting failed to stem the decline. The median price of a new home dropped 3% to $309,200. Year over year, the median price is down 3.8%. If the current sales pace is maintained, we should expect to see more discounting by homebuilders to move inventory, which sufficiently increased last month to push supply up to 5.7 months from 4.9 months in March.
Fortunately, one month does not make a trend. If we look at the sales trend over the past year, we see the monthly sales are up roughly 55,000 units compared to April 2016. If we look back two years, we see monthly sales are up roughly 90,000. The long-term trend remains our friend.
When the disappointing news on new-home sales hit the wires, most market watchers adjusted their expectations for existing-home sales. They were right to do so.
Existing-home sales dropped 2.3% to 5.57 million units on an annualized rate in April. In contrast to homebuilders, though, owners weren’t discounting to move their property. The median price for an existing home actually rose 3.5% month over month to $244,800. Year over year, the median price is up 6%. What’s more, what was offered for sale sold quickly. Days on the market fell to its lowest level since 2011.
Compared to a year ago, existing-home sales are up 1.6%. That might seem insignificant compared to the year-over-year growth in new-home sales, but new-home sales build off a much smaller base. It’s always easier to go from one to two than it is to go from one million to two million.
As for the future, an immediate pick-up in sales is unlikely. Recent mortgage-purchase activity supports this outlook. Activity has slowed in recent weeks. The MBA’s latest report on purchase loans from a national perspective shows applications were down 1% last week (though thanks to the recent drop in mortgage rates, refinances were up 11%).
The news on sales was disappointing, but not all that bad. Market heterogeneity is always a mitigating factor. As we know, all real estate markets are local markets. Aggregate national numbers may or may not apply to any local market.
That said, we were expecting to see something a little better than what we saw in April, especially after reading recent reports on the rising trend of millennials and other first-timers embracing homeownership.