On Thursday, May 21, the National Association of Realtors released its report on existing home sales in April. Total existing home sales declined 3.3% to an annual rate of 5.04 million units in the U.S. (Source: National Association of Realtors, May 21, 2015.)
April’s existing home sales are disappointing; analysts were expecting 5.24 million units for the month. The decline in existing home sales extends coast-to-coast. According to the report, all major regions except for the Midwest experienced sales declines in April.
Existing Home Sales Inventory Rising, Less All-Cash Sales, Distressed Sales
According to Lawrence Yun, chief economist at the National Association of Realtors, the setback in April was a result of “lagging supply relative to demand and the upward pressure it’s putting on prices.”
To see whether the problem is with supply or demand, let’s look at inventory.
At the end of April, total housing inventory rose 10% to 2.21 million units. To put it in perspective, unsold inventory is equivalent to 5.3 months of supply at the current speed of sale. In March, unsold inventory could only last 4.6 months.
Also, more buyers are relying on mortgages compared to before. In April, all-cash sales accounted for 24% of total transaction. This is unchanged from March. However, last April had 32% all-cash sales, implying a 25% decline in all-cash transactions.
Foreclosures and short sales accounted for 10% of total sales in April. This is unchanged from March and quite an improvement compared to the 15% in the same period last year. Among them, seven percent of April sales were foreclosures while three percent were short sales.
Distressed sales did not do well in terms of price. On average, foreclosures sold at 20% below market value in April—worse than March’s 16%. Short sales were, on average, 14% lower than market—a slight improvement from March’s 16%.
Lack of First-Time Buyers
First-time buyers made up 30% of April’s transactions. This is unchanged from March. However, the 30-year average—and a number that economists consider healthy—is 40%. Since the economy is supposed to be rebounding, the lack of first-time buyers is a worrying sign.
One explanation is that at such high property prices and stagnant wages, a lot of people simply cannot afford to buy a home. Banks have also tightened up lending rules since the Great Recession. However, if you look at the S&P Case-Schiller National Home Price Index, property prices today still have about 15% to go to reach the pre-recession high.
The situation in the U.S. housing market has far-reaching implications. Housing is an important contributor to our country’s gross domestic product (GDP). Homebuyers are likely to purchase furniture, cutlery, and appliances. They might also take on renovation projects.
Historically, residential fixed investment and housing services accounted for 17% to 18% of GDP. More than anything, the slowdown in April is a sign of growing weakness in the U.S. economy. (Source: Eye On Housing, last accessed May 21, 2015.)