NAR's Yun Reasons to Be Concerned About Housing Mismatches
Home sales grew in May and with the jump came a fresh round of price increases. The median home price bounded up 8.0 percent from April and up 15.4 percent from the year before. It was the 15th consecutive month of year-over-year price gains, a feat not seen in seven years, since May 2006. So far this is all sounding positive, right?
National Association of Realtors chief economist Lawrence Yun is typically very optimistic in his comments on the housing market, even when things are not going swimmingly. In a recent interview with the Chicago Tribune (Add link http://www.chicagotribune.com/business/ct-biz-0702-realtor-outlook--20130702,0,2406391.story) however, he showed some uncharacteristic signs of worry about these ballooning home prices.
"I am concerned about the rise in prices in some markets being too fast, surpassing people's income growth by many multiples. It is not sustainable. You cannot have a situation where prices rise 10 or 15 percent, incomes rise 1 or 2 percent, year in and year out," he told the Tribune.
He continued, "I'm concerned about this mismatch, and furthermore, the mismatch of many younger people being unable to buy a home. It's very low. It's only 28 percent of the recent buyers. That's implying that younger people are not participating in this housing market recovery."
His next biggest concern was the ongoing shortage of homes for sale. In May, housing inventory fell 3.3 percent to a 5.1-month supply. Anything below a 6-month supply means it's a seller's market with not enough homes to fill demand. In fact, buyer traffic was up 29 percent from the previous year, but the inventory of homes had shrunk 10 percent. That can only lead to bidding wars and rapidly rising prices.
Yun has advocated for a 50 percent increase in new home building to balance the market. "The only genuine inventory increase is either for the homebuilders to build more or for the investors to reverse their purchases. In other words, they bought, now time to sell. But there are no investors doing that."
He added, "If we have a lack of inventory continuing and we will see this price growth continue, it makes it less affordable, and homeownership opportunities diminish for more people."
A dwindling number of distressed properties is also contributing to the home shortage. In May, only 18 percent of existing home sales were foreclosures or short-sales, down from 25 percent a year ago. For many years an abundance of these disccounted homes was keeping home prices low. As lenders work off their backlogs of distressed properties, prices will naturally trend higher even if more homeowners decide to sell or builders increase starts.
Plus, tight credit remains an issue. "Credit availability has been excessively stringent. It'll be at least two to three years before we get back to normal standards," Yun said.
Still overall Yun believes that the fundamentals of recovery are in place. "I don't have any concerns about the sustainability of the real estate recovery. In terms of hitting the bottom, recovering, this is genuine. It has a foundational support to it."