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National inventory shortage drove US home prices up Q1 2017: NAR

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By: Robert Clark

Homebuyers inundated the US housing market in the first three months of 2017. But according to a newly released report from the National Association of Realtors (NAR), there weren’t nearly enough listings to keep up with demand, which in turn caused a spike in national home prices.

NAR began tracking metro median single-family home prices in 1979 and condo prices in 1989 in 175 US metros. And, while condos typically cost less than single-single homes, a concentration of condos in high-cost metro areas can cause the national condo price to actually be higher than the national single-family home price, says NAR.

The median price of single-family homes in the US jumped nearly 7 percent to $232,100 from last year in the first quarter of 2017. This marked the fastest price growth on record since the 8.2 percent annual price growth observed in the second quarter of 2015. National median home prices have accelerated for the last three quarters, according to NAR data.

Single-family home prices rose in the first quarter in 152 of the 178 (85 percent) metro areas tracked by the NAR — slightly below the 89 percent that recorded increases the previous quarter. Double-digit gains over last year were recorded in 30 metros (17 percent) in the first quarter of 2017. Annual price decreases were recorded in 25 metros (14 percent) in the first quarter.

The national median price for condos and co-ops rose 7.1 percent from last year to $218,600 in the first quarter of 2017, with annual price gains recorded in 85 percent of the metros studied by NAR.

Meanwhile, total existing home sales, which includes both single-family and condos, rose 1.4 percent from the previous quarter to a seasonally adjusted rate of 5.62 million in the first quarter of 2017 — the highest in a decade. This was 5 percent higher than last year at the same time, says the NAR.

There were 6.6 percent fewer homes for sale at the end of the first quarter of 2017 compared to the previous year. The average supply was 3.7 months during the first quarter, which was down from the 4.2 months recorded the same time last year.

Supply shortages helped to fuel the quickened pace of home price appreciation nationwide, says NAR’s chief economist Lawrence Yun. The total number of sales got a boost from an influx of homebuyers at the start of the year, but “new listings failed to keep up and hovered around record lows all quarter,” says Yun.

Increased demand among homebuyers likely caused bidding wars among buyers, especially at the entry level end of the market or “starter-homes.” This “in turn quickened price growth to the fastest quarterly pace in almost two years.”

But lack of new construction continues to thwart would-be homebuyers in many metros, especially in those that have recorded strong job gains over the last several years. “Many of these metros — in particular several parts of the South and West — are seeing unhealthy price appreciation that far exceeds incomes” as a result of the lack of new construction.

And the inventory shortage is likely to continue through the remaining months of 2017.

“Even if current owners sell, they most often turn around and buy another home, so there is not a net increase in inventory unless they are buying a new home,” NAR’s managing director of housing research Danielle Hale told BuzzBuzzNews.

Although NAR predicts “robust construction” for the remainder of 2017, Hale says that “we are at such low inventory levels relative to homebuyer demand that we still expect faster than normal price growth — a sure sign of low inventory relative to demand — for the balance of 2017.”

Plus, the additional inventory from new construction will help slow the pace of home price growth and make it easier for first-time buyers to get into the market without the stiff competition they’re facing right now, according to Hale.

Four of the five most expensive housing markets in the first quarter were in California: San Jose, San Francisco, Anaheim-Santa Ana and San Diego. Urban Honolulu rounded out the top five.

On the other end of the spectrum, Youngstown-Warren-Boardman, Ohio, Cumberland, Maryland, Decatur, Illinois, Elmira, New York, and Binghamton, New York were the cheapest housing markets in the first quarter of this year.

Rising prices and tightening inventory likely helped elevate builder confidence in May — a good sign of a continued strengthening in the US housing market, according to new data from the National Association of Home Builders Housing Market Index (HMI).

The HMI rose 2 percentage points to an index of 70 in May — the second highest reading since June 2005, says the NAHB. “This shows that builders’ optimism in the housing market is solidifying, even as they deal with higher building material costs and shortages of lots and labor,” says NAHB chairman Granger MacDonald.

The HMI increase also revealed “a sign of growing consumer confidence in the new home market,” says NAHB chief economist Robert Dietz. “Especially as existing home inventory remains tight, we can expect increased demand for new construction moving forward.”

Click here to read the entire NAR report, and here to read the entire NAHB report.

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