Housing

A spate of new economic reports shows that a speedier recovery of the housing market does not appear in the cards this year. Housing experts are dialing back rosier projections in favour of another ho-hum year, where home sales are flat and prices climb to make ownership less affordable.

The National Association of Realtors last week hinted that it will lower, perhaps as soon as this week, its forecast for sales of existing homes. The group reported that sales dipped 0.2 per cent in March to an annualised rate of 4.59 million, with sales of single-family homes dipping 7.3 per cent compared with the pace of March 2013.

Data on new homes sales was similarly weak. Sales of newly built, single-family homes dropped 14.5 per cent in March to an adjusted annual rate of 384,000 units, according to data from Department of Housing and Urban Development and the US Census Bureau. That’s a double whammy, since new homes tend to be purchased by homeowners who are trading up.

Earlier, the two agencies reported that nationwide housing production rose 2.8 per cent above February numbers, a positive data point but one hardly indicative of a sizzling housing market.

It all adds up to the likelihood of yet another subpar year for the housing sector.

“The (sales) forecast will be coming down and that is largely due to affordability challenges,” Danielle Hale, director of housing statistics for the Realtors group, said in an interview.

“Incomes have not kept pace with the pace of house price increases, which has made homes less affordable this year than they were last year.”

The weak sales of new and existing homes come even as hiring appears to have moved onto more solid ground in the past six months.

“I’m puzzled by the fact that existing home sales have been so weak,” conceded Patrick Newport, an economist specialising in housing for forecaster IHS Global Insight.

There are contributing factors to the sluggish housing market, he said, including nearly a full percentage-point rise on 30-year fixed mortgage rates and an unusually harsh winter. The average rate on a 30-year fixed mortgage is still below 4.5 per cent, according to multiple surveys. That’s lower than mortgage rates in the long stretch between 1990 and 2008, when home sales and prices flourished nationally.

The problem is that five years since the end of the Great Recession, few Americans can qualify for the historically low mortgage rate. After the near-collapse of the housing market in 2007-2008, lending standards tightened and first-time homebuyers with little credit history still struggle to get a loan. That’s led to home sales falling across the lower price points.

Homes priced under $US100,000 are going backward, sales of those priced between $US300,000 and $US600,000 are flat, and only those worth more than $US1 million are up, by about eight per cent. And first-time homebuyers accounted for about 30 per cent of sales in March, versus 40 per cent in more normal times.

“What we’ve seen in the data is that the lower end of the market (for mortgage applications) seems to be contracting while the higher end seems to be growing,” said Joel Kan, director of economic forecasting for the Mortgage Bankers Association.

“Everything below $US417,000 is declining; everything above that has been increasing. One of the reasons (why) is we’re seeing less first-time homebuyers in the market.”

Credit products extended to homebuyers are now about one-eighth of what they were during the bustling 2006-2007 period, Kan added.

“Whether it is tight credit or not, people are definitely putting off home purchases,” he said.