Nationwide, the supply of existing homes for sale fell to 4.4 months in December.(Photo: Kevork Djansezian, Getty Images)
- New listings are down 14% in first half of January
- Supply of homes on market is lowest in 7 years
- Will spring bring out more home sellers?
The supply of homes for sale has been shrinking for six months and shows no improvement so far in January — a bad sign for buyers.
New listings of existing homes for sale were down 14% year-over-year in the first two weeks of January, according to Realtor.com, which tracks 143 markets nationwide.
In Phoenix, where prices were up 24% in November from a year earlier, new listings through the first three weeks of January hit their lowest level in 13 years, says Mike Orr, real estate expert at the W.P. Carey School of Business at Arizona State University.
That’s bad news for buyers, and it means “prices need to go up more” to bring more sellers to market, Orr says.
Nationwide, the supply of existing homes for sale fell to 4.4 months in December, based on the current monthly sales pace, says the National Association of Realtors. That’s the lowest level in more than seven years. A six-month supply is generally considered balanced between buyers and sellers.
Home prices in November were 7.4% higher on average than a year earlier, according to CoreLogic. Real estate experts had expected that rising prices would spur more sellers trapped by years of falling prices.
Instead, January’s listing data “is the same sad story,” says Glenn Kelman, CEO of online brokerage Redfin. If sellers don’t have to sell, “they’re holding on, thinking they’ll wait for prices to go up even more.”
Redfin’s data, covering 19 major markets mostly in the West, shows new listings down 29% the first two weeks of January vs. last year.
Scarce sellers aren’t the only driver of shrinking supplies. There are fewer distressed properties for sale. Foreclosure sales were down 7% through the first nine months of last year from the same period in 2011, RealtyTrac says.
Meanwhile, demand is up. Existing home sales were up 9.2% last year, NAR’s preliminary data show. New-home sales rose almost 20% in 2012, the government reported Friday, while supply fell to 4.9 months in December from 5.4 months a year before.
New home construction is still weak. In each of the past three years, builders completed fewer than 500,000 single-family homes. That’s less than half the number built annually between 1993 and 2007, according to the Census Bureau.
Home builders would need to double production this year to alleviate the tight supply, estimates Lawrence Yun, NAR’s chief economist. That’s not expected.
Home supplies nationally will stay at about the five-month level much of the year, Yun predicts.
Some markets are far below that.
California’s supply of existing single-family homes for sale stood at 2.6 months in December, the California Association of Realtors says.
“Nobody is selling because no one has anywhere to go,” says Barbara Hendrickson, of Red Oak Realty in Berkeley, in the San Francisco Bay Area, which had a 1.8-month supply in December.
The low supply is feeding bidding wars. One of Hendrickson’s clients recently lost a bid despite offering $130,000 above the home’s $775,000 asking price, Hendrickson says.
Whether the supply of homes for sale will expand to meet rising demand is a “big question for the market” in 2013, says Jed Kolko, economist with real estate website Trulia.
This year is also the first since the housing bust began that falling inventories are not necessarily a good thing, he says.
Listings may still swell in time for the busy spring selling season, says Stan Humphries, Zillow economist.
He says listing activity next month will be key. If it doesn’t pick up by then, the spring season is likely to bring a lot of price increases, he says.
Months’ supply of existing homes, based on the annual sales rate for each December:
Home prices in Pasadena rose last month, reflecting an ongoing trend in which a dwindling number of homes on the market has sparked bidding wars that drive up prices, according to the latest real estate figures.
Despite the trend, median prices in surrounding communities did not fare so well.
The median price of a single-family home in Pasadena was $599,000 last month, an 11% climb from $538,000 in December 2011, according to statistics compiled by Realtor Keith Sorem with Keller Williams Realty in Glendale.
The median price of a condominium also increased slightly, from $400,000 in December 2011 to $404,000 last month.
Meanwhile, the number of single-family homes on the market continued to slide. There were 115 homes on the market last month, a 54% tumble from the 249 homes a year ago.
Condos saw a similar decline, from 174 in December 2011 to 99 last month — a 43% drop.
But in San Marino, the median price of a single-family home fell nearly 17%, from $1.81 million in December 2011 to $1.51 million last month.
Only eight homes were for sale in San Marino last month, a roughly 58% drop from the 19 on the market the year prior.
Median prices also slid in South Pasadena, with the median price for a single-family residence falling from $915,000 in December 2011 to $894,000 last month. The median price of a condo fell by 23%, from $530,000 to $405,000.
There were 15 homes for sale in South Pasadena last month, a 28% decrease from 21 a year ago. And only one condo was on the market last month, down from 11 in December 2011.
It would be comforting if they were. Yet the unfortunate truth is that the tea leaves don’t clearly suggest any particular path for prices, either up or down.
On the one hand, there were sharp price increases in 2012, with the S.&P./Case-Shiller 20-City Index, which I helped devise, up a total of 9 percent over the six months from March to September. That comes after what was generally a decline in prices for five consecutive years. And while prices dropped very slightly in October, the trend was quite encouraging for the market. (Our November data come out on Tuesday.)
But some of these changes were seasonal. Home prices have tended to rise every midyear and to fall slightly every fall and winter. And for some unknown reason, seasonal effects have become more pronounced since the financial crisis.
After screening out these effects, a number of indicators are up, including data for housing starts and permits as well as the National Association of Home Builders/Wells Fargo Index of traffic of prospective homebuyers, which has made a spectacular rebound since last spring.
What might explain this picture? It’s hard to pin down, because nothing drastically different occurred in the economy from March to September. Yes, there was economic improvement: the unemployment rate, for example, dropped to 7.8 percent from 8.2 percent. But that extended a trend in place since 2009. There was also a decline in foreclosure activity, but for the most part that is also a continuing trend, as reported by RealtyTrac.
And, last spring, along with Karl Case of Wellesley College and Anne Thompson of McGraw-Hill Construction, I conducted a detailed survey of the attitudes of recent home buyers in four American cities, as I discussed here in October. We did not see any evidence of increased optimism.
In short, it is hard to find an exact cause for the rebound in home prices. But that isn’t unusual — we hardly ever know the real causes of major changes in speculative prices. Yet we do know that any short-run increase in inflation-adjusted home prices has been virtually worthless as an indicator of where home prices will be going over the next five or more years.
THERE is a good deal of short-run momentum in home prices — they tend to keep going in the same direction for a year or maybe more. But those prices have generally reverted to the mean fairly quickly, in inflation-corrected terms. The upswing in home prices from 1997 to 2006 — up 86 percent, in real terms — was an anomaly. And that upswing was almost completely reversed by 2012. We certainly can’t rule out another boom. It’s possible that the 20th-century pattern of real home prices, which typically hugged the historical mean, has disappeared. Perhaps people are more speculative in their thinking, after the recent roller-coaster ride, and more prepared psychologically to buy into a bubble. But I wouldn’t put any money on that.
History doesn’t suggest that another big bubble will come so fast. In fact, before the most recent one, the United States had had only one major national home price boom in the last century, when real prices rose a total of 68 percent from 1942 to 1953.
After the traumatic collapse of the last price bubble, Americans seem less sanguine about owning versus renting. According to the Census Bureau, the homeownership rate has been falling, from 69.0 percent in the third quarter of 2006 to 65.5 percent in the third quarter last year.
A study of the causes of these rate movements, by Stuart Gabriel of the University of California, Los Angeles, and Stuart Rosenthal of Syracuse University, concluded that further declines seem likely, but that a forecast would depend “on uncertain forecasts of attitudes toward investing in homeownership as well as changes in credit market and other economic conditions.” (The study was presented at the January meetings of the American Real Estate and Urban Economics Association/American Economic Association.) If the trend continues, it would suggest long-term declines in prices of existing detached single-family homes, because they are costly to manage as rentals.
The housing market has also been subject to new oversight, including that of the Consumer Financial Protection Bureau, which just this month announced new ability-to-repay standards for mortgage lenders. Those standards will make wild lending harder to do.
So it seems that since 2006, our society — including both buyers and lenders — hasn’t become more speculative in its attitudes toward housing. Instead, it has become more wary, and more regulated.
And, of course, economic clouds are still hovering. Slow overall growth continues in the United States, and European financial markets remain vulnerable.Much of our economy, notably housing, is still supported by taxpayer bailouts, which are clearly not a long-term solution. There are also lingering uncertainties about emerging-market economies, as well as the risk that a disturbance in the Middle East could cause an energy crisis.
Most experts are not predicting any big change in home prices. As of December, the Zillow-Pulsenomics Home Price Expectations Survey, which involves more than 100 forecasters, and the S.& P. Case/Shiller Composite Index Futures were both forecasting modest increases for the next half-decade, implying inflation-adjusted price growth of 1 to 2 percent a year.
The bottom line for potential home buyers or sellers is probably this: Don’t do anything dramatic or difficult. There is too much uncertainty to justify any aggressive speculative moves right now. If you have personal reasons for getting into or out of the housing market, go ahead. Otherwise, don’t stay up worrying about home prices any more than you do about stock prices.
I can’t offer any clearer picture, and I don’t see a solid basis for anyone else to do so, either.
Robert J. Shiller is professor of economics and finance at Yale.