Housing still has plenty of room for improvement

McClatchy Washington BureauMay 23, 2014 

— Sales of new homes picked up in April, the Commerce Department said Friday in the last of several reports this week showing improvement from the dismal winter period.

Analysts, however, still expect a weaker 2014 for housing than first thought.

The latest reason why came Friday, when Commerce reported that sales of new single family homes rose at annualized rate of 6.4 percent in April. That’s an improvement over March but is 4.2 percent below sales in April 2013. The majority of new homes sold in April were priced between $200,000 and $400,000.

“New Home Sales Bounce Back to Mediocrity,” said the headline of an analysis by forecaster IHS Global Insight.

A day earlier, the National Association of Realtors reported that April brought only modest improvement in home sales. Sales of single family homes, townhouse and condos rose by an annual rate of 1.3 percent last month, to 4.65 million from 4.59 million in March, but that was 6.8 percent lower than the number of units sold in April 2013.

“Some growth was inevitable after sub-par housing activity in the first quarter,” said Lawrence Yun, chief economist for the Realtors’ group, pointing to expected growth in both the inventory of homes for sale and actual sales. “Annual home sales, however, due to a sluggish first quarter, will likely be lower than last year.”

The new-home sales, however, brought a bit more reason for hope.

“New home sales are now running slightly above their average level of the last 12 months and paint a stronger picture of the home sales market than the existing home sales data—although the price data point to the median new home price being slightly lower than a year ago,” John Ryding and Conrad DeQuadros, economists with RDQ Economics, wrote in a note to investors. “The supply of unsold homes appears fairly well contained in relation to sales, which we think will support home construction activity going forward.”

Both reports gave little relief to Federal Reserve Chair Janet Yellen, whose controversial bond buying program is supposed to help lower lending rates, spur greater home affordability and thus help the broader economy. That effort is being tapered down and is expected to end this year, although the weak housing numbers may argue for a slower pace of withdrawal.

Yellen testified earlier this month about renewed weakness in the housing sector, and the minutes from the last meeting of Fed policymakers show that others Sashared her concerns.

“They saw a range of factors affecting the housing market, including higher home prices, construction bottlenecks stemming from a scarcity of labor and harsh winter weather, input cost pressures, or a shortage in the supply of available lots,” said the minutes from the April 29-30 Fed meeting, released with a lag on Wednesday. “A couple of participants noted that mortgage credit availability remained constrained and lending standards were tight compared with historical norms, especially for purchase mortgages.”

McClatchy reported on May 8 that cash purchases of homes are reaching record levels in many states across the nation. Despite lending rates that are very low by historical standards, many Americans can’t get, or don’t want, a mortgage.

“The market for lived in homes is not out of the woods yet: access to credit still poses a major challenge to buyers,” said Stephanie Karol and Patrick Newport, economists with IHS Global Insight, in an analysis of the latest existing home sales.

Other analysts cautioned that existing home sales reflect contracts signed months earlier.

“We will, therefore, need a couple more months of data before we can assess to what extent the most recent decline in home sales was a temporary result of bad winter weather rather than a pullback resulting from higher mortgage rates,” wrote Ryding and DeQuadros. “It is worth noting that home price gains have slowed significantly in recent months, which we judge to be an encouraging development from the perspective of financial stability.”

Rising home prices have actually weighed against purchases, making homes less affordable.

On a positive note, the California Association of Realtors reported Thursday that 88.4 percent of home sales last month in the Golden State were non-distress sales, their highest level since late 2007.

That only 11.6 percent of all sales were distress sales is heartening, because in April 2013 they represented 24.6 percent of all sales. Because of its size, economic trends in California weigh heavily on the rest of the nation.

In a speech Thursday, John Williams, the president of Federal Reserve Bank of San Francisco, acknowledged that “the wind has been taken out of the sails” for home sales, but expected that “housing should begin to provide the support to the recovery we’ve been waiting for.”

Email: khall@mcclatchydc.com; Twitter: @KevinGHall.

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