Taking a closer look at the housing market

There were several pieces on Monday about the state of the housing market after sales of existing homes dropped slightly, according to the National Association of Realtors. One of my favorite parts about covering data that’s released every month is reading the lead anecdotes reporters find to illustrate the trends.

Here’s the lead from the Wall Street Journal story:

Arthur Patterson received an unusual request from a real-estate agent in February: Would he consider selling his two-bedroom townhouse in Seattle’s Ballard neighborhood to a buyer ready to place an offer—even though the home wasn’t on the market?

The timing made sense for Mr. Patterson, a 25-year-old software engineer who at the time was planning a move overseas. But instead of selling at a price that would have left him with less than he paid, he decided to rent the house out. “If I could have walked away with cash in hand for what I had paid for it four years ago, I would have done it,” he said.

Mr. Patterson’s decision highlights the latest hurdles for the housing market. Would-be sellers aren’t eager to list at home prices that, while rising, remain sharply off their peak. That, in turn, is creating supply shortages as the spring sales season gets into gear.

Sales of previously owned homes in March fell 0.6% from February after adjusting for seasonal factors, the National Association of Realtors said on Monday. Sales were still up by 10.3% from a year earlier, marking the 21st consecutive month in which sales have increased from their year-ago levels.

In a reversal from just two years ago, the biggest challenge facing housing markets today is too few homes being offered for sale, according to industry executives. The lack of supply is fueling activities that are reminiscent of the housing boom of the past decade: bidding wars, lotteries to purchase new homes, home flipping, and letters like the one Mr. Patterson received.

“Almost everyone wants to buy a home right now—interest rates are low, the market has turned, and they want to get in on the bottom—and they can’t,” said Glenn Kelman, chief executive of real-estate brokerage Redfin, which does business in 21 markets. While the housing-market revival shows few signs of reversing, Mr. Kelman worries that the “inventory crunch has become self-perpetuating: people can’t find a new house, so they’re hesitant to sell their old house.”

The number of homes for sale in March totaled 1.93 million, up by 1.6% from February but down by 16.8% from one year ago. It was the lowest level of inventory for the month of March since 2000, according to the Realtors’ group.

The Washington Post had an interesting story about large investors buying single-family homes, pushing some people out of the market as well:

Before the housing crash, big investors almost never wanted single-family homes, largely because of slow returns and the money-draining hassle of managing tenants in often far-flung properties.

But with prices still depressed and with low interest rates and high stock prices limiting prospective returns elsewhere, major investors see the prospect of healthy profits in single-family homes.

The strategy makes sense, as a shrinking share of Americans own their homes. After more than a decade of robust increases, the national home-ownership rate peaked in 2004 at 69.2 percent. Since then, it has been in steady decline, falling to 65.4 percent at the end of 2012, according to Census Bureau figures.

The big investor activity is pushing up prices, which is good for the large number of homeowners whose mortgages are larger than their home’s values. But for people being shut out of the biggest bargains offered by the housing market, it means a longer, slower slog to building equity. It also raises the specter of future price declines when investors lose interest or decide to dump their properties.

“Clearly the investors are moving markets in some places,” said Dean Baker, co-director of the Center for Economic and Policy Research and author of a popular housing blog. “In some markets at the bottom end, you are looking at 30 or 40 percent gains year to year. That is frightening to me. At some point the music stops. The investors if they get hurt, that is their problem. But invariably a lot of other people will get caught up in that.”

Reuters points out that the decline may be more about supply than demand, a sign of continued strength:

Still, the housing market recovery that has helped boost the economy remains intact, and there is some evidence the slowdown in sales may represent supply constraints more than crimped demand.

Sales in March were 10.3 percent higher than the same month last year, and the median price for a home resale was up 11.8 percent, the biggest increase since November 2005, to $184,300.

The data added to other reports such as employment and factory activity suggesting a loss of momentum in the economy as the first quarter ended.

The supply of existing homes on the market for sale rose 1.6 percent during the month to 1.93 million, which represented 4.7 months’ supply at March’s sales pace, up from 4.6 in February.

Housing is obviously more about location than it is about national data, but it is interesting that many market watchers attribute the decline in sales to supply. That’s only good news for those looking to sell. The trick may be finding a place to head once the home is sold.