Us home sales soar as inventory dives

Photo credit: Cyndie

Sales of US homes are soaring, as buyers return to an increasingly stable market. The strengthening American economy has boosted optimism among house-hunters, while improving financial conditions have also helped first-time buyers to step onto the housing ladder.

According to the National Association of Realtors, sales are now at their highest level in more than nine years, with gains in the Northeast and West offset by small decreases in the Midwest and South. The Pending Home Sales Index climbed by 0.9 per cent from April 2015 and is now 10.4 per cent higher than the same month in 2014. The index has now risen year-over-year for nine months in a row.

Lawrence Yun, NAR chief economist, says this increases the likelihood that home sales are off to their "best year since the downturn".

"The steady pace of solid job creation seen now for over a year has given the housing market a boost this spring," comments Yun. "It's very encouraging to now see a broad based recovery with all four major regions showing solid gains from a year ago and new home sales also coming alive."

First-time buyers are increasingly active, with 32 per cent of all buyers purchasing their first home, up from 27 per cent one year ago.

Yun notes in his mid-year outlook report that there "is no massive shadow inventory" that can disrupt the market. Indeed, the number of distressed home sales has been steadily falling, now accounting for only one in 10 of all transactions.

The stabilising market, though, has another obstacle to overcome: a lack of inventory.

"Housing affordability remains a pressing issue with home-price growth increasing around four times the pace of wages," cautions Yun. "Without meaningful gains in new and existing supply, there's no question the goalpost will move further away for many renters wanting to become homeowners."

The principal reason for the inventory shortage is the cumulative impact of homebuilders not being active for five years. Builders typically put up 1.5 million new homes annually, but have only managed to reach 1 million once in the past six years.

As a result, in places like Denver and Seattle, the situation is "unreal", says Yun, with under one-months's supply of homes. In Palm Beach, Florida, May’s inventory of single family homes in Martin County has dropped 35 per cent in the past year, while the median number of days a home spends on the market fell 25 per cent (from 56 days to 42 days).

"The refrain we’re hearing from Realtors in many markets is there’s not enough for-sale inventory to meet the demand from buyers," says 2015 Florida Realtors President Andrew Barbar, a broker with Keller Williams Realty Services in Boca Raton.

"That’s putting upward pressure on prices and also leading to properties selling at a quicker pace. [Statewide] single-family existing homes in May spent a median of 49 days on the market, down 9.3 per cent from a year ago; median days on market for townhouse-condo properties was 52, down 5.5 per cent from May 2014."

For first-time buyers fearing an unhealthy and unsustainable price rise, though, there is some good news in that investors are "slowly stepping out" from the US market overall, as rising prices make potential returns less attractive. Nonetheless, sales in Florida rose 7.7 per cent year-on-year, as the state remains both a strong hotspot for both local and international buyers.