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Real Estate Market Commentary - April 2014
by Peter L. Zachary, MAI, MRICS

The Bloomberg News had an article on their website on April 23, 2014 entitled, "Housing Rebound in U.S. Losing Steam as Prices Rise". It states:

"The housing recovery in the U.S. is running out of steam as buyers balk at record prices and higher mortgage rates that are making properties less affordable.

Sales dropped a surprising 14.5 percent to a 384,000 annualized pace, lower than any forecast of economists surveyed by Bloomberg and the weakest since July, Commerce Department data showed today in Washington. Three of the four regions saw setbacks, with demand in the West slumping to the lowest level in more than two years.

More expensive properties, borrowing costs that have jumped almost a percentage point from last year and lenders unwilling to go out on a limb are challenging an industry still emerging from its worst slump since the Great Depression. In time, the slowly mending job market will help revive demand at builders such as NVR Inc. (NVR)

"It's the reduction in affordability, the lack of inventory, also weak growth in median household income -- all these are contributing to the sluggish recovery in housing," said Ryan Sweet, a senior economist at Moody's Analytics Inc. in West Chester, Pennsylvania, who forecast sales would drop in March. "It's going to raise concerns about the strength of the housing recovery, but it's too early to be too worried."

Changing Mix

More higher-priced properties are selling while first-time buyers and lower-income Americans struggle to get into the market. The decrease in sales was concentrated in houses priced less than $300,000, while more expensive dwellings showed gains, today's report showed.

"The first-time homebuyer is not participating, nor are other buyers of modest means," said David Crowe, chief economist for the National Association of Homebuilders in Washington. "We've lost a segment of our homebuyers because of tight credit."

The average rate on a 30-year, fixed mortgage was 4.27 percent in the week ended April 17. A year ago, the rate averaged 3.41 percent, according to Freddie Mac in McLean, Virginia.

"Prices are rising, mortgage rates are higher, and that makes it considerably more expensive to buy than it was a year ago," said Jed Kolko, chief economist for Trulia Inc., a San Francisco-based real estate information service. "Affordability is definitely a concern."

Falling Orders

NVR, a homebuilder based in Reston, Virginia, this week reported a 5 percent drop in new orders in the January-through-March period from a year earlier, which contributed to a 32 percent plunge in net income. Meritage Homes Corp. (MTH).

"We are projecting that our 2014 home closing gross margin may be relatively flat compared to 2013, due to less pricing power and higher land costs," Steven Hilton, chairman and chief executive officer of Scottsdale, Arizona-based Meritage, said in a statement today.

Last month's slump in U.S. home demand was led by a 21.5 percent drop in the Midwest, the biggest decrease for that region since September 2012, today's figures showed. The West fell 16.7 percent to an 80,000 annualized rate, the weakest pace since January 2012. Only the Northeast reported a gain, which may reflect a bounce back from harsh winter weather in the first two months of the year.

Timelier Gauge

New-home sales, which account for about 7 percent of the residential market, are tabulated when contracts are signed, making them a timelier barometer than transactions on existing homes.

The pace of residential construction was held back last month even in warmer parts of the country that weren't hit with snow and frigid temperatures. Housing starts climbed 2.8 percent to a 946,000 annualized rate following February's 920,000 pace, the Commerce Department reported last week. Permits for future projects declined.

Sales of existing homes fell in March for a third consecutive month as rising prices and a lack of inventory discouraged would-be buyers. Closings on previously owned properties, which usually occur a month or two after a contract is signed, fell 0.2 percent to a 4.59 million annual rate, the lowest level since July 2012, the National Association of Realtors reported yesterday. Purchases were down 8.5 percent compared with the same month last year."

More to come next month. Read previous Real Estate & Housing Market News.


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