January proved to be a booming month for home sales, assuming there was something to sell of course. Even after adjusting for supply and seasonal trends, the Pending New Home Sales Index by Meyers Research was up 13.1 percent versus the same time last year, and 3.6 percent higher than two years ago. In addition, pending sales for existing homes in January surged the most since October 2010, and were up 6.7 percent year-on-year.
Yet, the national inventory shortage for existing homes is striking, perhaps contributing to buyers looking for new homes. According to the National Association of Realtors® inventory fell nearly 11 percent year-over-year in January to the lowest overall level since 1999. At current sales rates, unsold existing home inventory fell to just 3.1 months, suggesting a market which is out of balance in favor of sellers.
This continued low inventory has meant continued pressure on home prices. The median price for an existing home tracked by the National Association of Realtors® rose 6.8 percent year-over-year through January, while the median price for new single-family homes tracked by the U.S. Census Bureau rose 14.0 percent during the same time period.
These same trends are playing out locally in metro markets such as Denver, Sacramento, the San Francisco Bay Area, and Southern California.
In Denver, according to that region’s Metro Association of Realtors®, existing home sales plunged over 34 percent between January and February of 2020 as available inventory had fallen by nearly 28 percent the previous month, leaving frustrated buyers fewer options from which to choose. With more competition for listings and just 1.7 months of inventory, the median sales price in the Denver region rose by nearly six percent year-over-year through February.
In the Sacramento region, according to that region’s Association of Realtors®, existing home sales fell 24.1 percent from December to January due in large part to inventory declining by over 27 percent in December to a timeline of just 1.1 months. Although inventory did rebound by just over seven percent in January, it was still down by nearly a third year-on-year, helping to push up sales prices by 6.5 percent.
In the San Francisco Bay Area, data from the California Association of Realtors® (CAR) shows the inventory timeline for existing single-family homes falling to just 2.1 months in November 2019, before rebounding to 4.1 months by January. However, that lack of inventory in November led to a plunge in existing home sales of over 18 percent, with further declines in both December and January. Conversely, new homes sales rebounded in January as inventory was added to the market. Consequently, with the lack of existing home inventory and the rapid acceleration on sales of limited new home inventory, home prices in one of the country’s priciest markets rose by another 2.0 percent year-on-year in January.
In the metropolitan Los Angeles area, similar data from the CAR shows the inventory timeline for existing single-family homes falling to just 2.8 months in December before recovering to a still-low 3.6 months by January. But with fewer homes from which to choose starting out 2020, January sales fell by nearly 19 percent from December, while home prices rose 7.8 percent over the same month of 2019.
Recently, average lending rates for a traditional, 30-year fixed mortgage fell to their lowest level on record of just 3.29 percent, and could even go lower due to effects from the COVID-19 virus, falling oil prices, and as more institutional investors move into the safety of government bonds. Since lower government bond rates mean lower mortgage rates, homebuyers will be able stretch their dollars further and thus able to consider more home options, including new construction.
Even if the new coronavirus impacts the U.S. economy in the short run, the long-run factors impacting housing supply will remain, and only building more housing will solve this pent-up shortage and keep prices from rising too far out of the reach of home buyers.
TTLC remains committed to addressing these shortages with creative land use strategies focusing on attainably priced homes, repurposing under-utilized sites in metro areas to new residential uses.