June 21, 2012 at 2:34 PM ET
A backward baby step in home sales last month is little more than a momentary bobble amid what appears to be an otherwise mending U.S. housing market, many industry analysts and some Realtors agreed Thursday.
While purchases of previously owned homes slipped by 1.5 percent last month as compared to April, many experts brushed off the decrease by pointing to a vastly limited stock of available listings -- especially a dearth of more-upscale houses in nicer neighborhoods. What's more, that lack of inventory seems to be helping shove values higher; the national median home price was up nearly 8 percent in May when compared to the same month last year.
While any possible residential revival is sure to kick out a few more sour notes this year, analysts said, Thursday's fresh clump of housing stats pile a bit more evidence on the case for a larger realty recovery.
"The bigger picture is that sales are still up almost 10 percent year over year," said Jed Kolko, chief economist for Trulia, a real estate website. "So the combination of declining sales (in May) but rising prices means that supply is tightening -- not that demand is weakening."
According to NAR, purchases of previously owned U.S. homes dipped to a seasonally adjusted annual rate of 4.55 million in May from 4.62 million in April.
“The slight pullback in monthly home sales is more likely due to supply constraints rather than softening demand. The normal seasonal upturn in inventory did not occur this spring,” said Lawrence Yun, NAR chief economist. “Even with the monthly decline, home sales have moved markedly higher with 11 consecutive months of gains over the same month a year earlier.”
Indeed, the common buzzword being bandied about lately among many Realtors with equal parts hope and hate: inventory.
Nationally, total housing inventory at the end of May dropped 0.4 percent to 2.49 million existing homes available for sale, NAR reported. That represents a 6.6-month supply of available homes at the current sales pace. In April, there was a 6.5-month supply.
Across the country, listed inventory is 20.4 percent lower than a year ago at this time, when a 9.1-month supply existed. Compare that to the peak of the market in July 2007 when unsold inventory hit a record of 4.04 million homes.
“Because new inventory is down year on year, that means there are fewer homes (for buyers) to choose from,” Kolko said. “That can hold back sales. You can’t sell homes that aren’t on the market.”
According to a survey released last week by Realtor.com, in 144 of 146 metro markets the inventory of listed residential properties dropped during May compared to the same month last year.
In Sacramento, existing inventory at the end of May was 1,413 single-family homes – compared with 4,111 homes the same month in 2011, said Brian McMartin, a broker associate with Better Homes and Gardens Real Estate, Mason-McDuffie.
That shortage is ramping anxiety and anger among Sacramento agents and buyers because the demand to buy there is gaining energy, McMartin said.
"At that rate, we have less than a month of inventory left, assuming nothing else came on the market,” McMartin said. “Sales here are up but not exponentially. We have an inventory issue.
“We have buyers frustrated, getting outbid left and right, making five, 10, 20 offers, having to overbid.”
The inventory shortage apparently is helping push up prices following the worst housing slump since the Great Depression, Yun said. The national median price for a home resale rose to $182,600 in May, according to NAR. That's 7.9 percent higher than the same month one year ago, and the highest since June 2010. The last time the American housing market posted three consecutive monthly price increases, year over year, was March to May of 2006.
A report Thursday by the the Federal Housing Finance Agency also showed that U.S. home prices rose 0.8 percent in April from March in a sign of property-market stabilization, agency analysts contend.
Kolko pointed to modest job gains, record-low interest rates, and the inventory scarcity as vital elements fueling the boost in home prices.
"But the important question," he added, "is why is inventory declining?"
Some would-be sellers probably are waiting to plunk for-sale signs in their yards because they aren’t convinced the housing market truly has hit bottom, experts theorize.
In Cuyahoga County, anchored by Cleveland, listings are down 5.7 percent for the year. Meanwhile, at one of greater Cleveland's biggest realty firms, Russell Real Estate Services, sales gained 11.5 percent in May over the previous month and 9.4 percent for the year, said Ron Russell, CEO of the company. The uptick there seems to be driven primarily by more upscale consumers.
"Many of our clients tell us they're ready to go from two garages to three, and that they're tired of living in a 1,500-square-foot home and want 3,000 square feet," Russell said. "If sales are up and inventory is down, inflation is here."
That price inflation already is showing up in the dollar volume of sales throughout Cleveland. Citywide, volume was up 31.1 percent in May and dollar-volume has climbed 21.3 percent for the year, Russell said.
Still another factor impacting inventory, Kolko said: the jagged cycle of foreclosure filings within individual markets, and the differing rules within some states as to how (and how fast) foreclosures are processed. In New York and New Jersey, for example, foreclosures must be handled judicially, meaning lenders must take borrowers to court to force foreclosure. That process often takes far longer to complete.
Last week, RealtyTrac released fresh figures showing that foreclosures nationally rose by 9 percent in May from the previous month, to 205,990 total properties ticketed for bank repossessions, scheduled auctions, or default notices.
Kolko agrees with the notion offered by RealtyTrac that May’s increase in foreclosure activity was ignited by lenders finally churning through a backlog of foreclosed homes and not by a new wave of homeowners who are falling behind on their mortgages.
In time, as lenders chip away at the foreclosure glut, that should invigorate the housing market by clearing the system of these distressed homes. That means less overhang, tighter supplies and, thus, increased demand, experts believe.
Distressed homes, including foreclosures and short sales sold at massive discounts, comprised 25 percent of the May existing-home sales -- a 28 percent drop in April and a 31 percent decline from May 2011, NAR reported Thursday.
In states where foreclosures must be handled by the courts, the pipelines for getting those homes back onto the market remain clogged, Kolko said.
But in states like California where foreclosures are primarily administered out of court, "many of those foreclosed homes already have been through the process and have been sold."
In Sacramento, where one in every 234 housing units was in foreclosure during May, according to RealtyTrac, broker McMartin said local real estate experts have been claiming for years that a massive surge of foreclosures is about to flood the market and ease the inventory shortage. If Kolko is correct, of course, that already has happened.
"The buzz we keep hearing is that the banks are going to release all this (formerly distressed) inventory," McMartin said. "We hear that same story every six to 12 months, or a different variation of it. It never materializes. I no longer have faith in that happening."
Despite the air-tight supply of listed homes in Sacramento, the median home price there was $168,750 in May, down from a peak of $392,750 in August of 2005, McMartin said.
"That brings us back to exactly 10 years ago when the median price was $169,718," McMartin said. "Around here, we call it 'the lost decade.'"
More money and business news: