Housing activity has slipped considerably during these past several months but help may be on its way. A primary obstacle to a long term housing recovery has been a lack of hiring. But recent gains in the job market portends favorably for a needed boost in housing demand.
There is no denying that weakness pervades the nation’s housing sector. Existing home sales fell to 5.02 million annualized units in February and are now down 23 percent since last November. Similarly, new home sales fell to 308,000 annualized units in February and are now 23 percent below the 400,000 annualized pace posted last October. Incredibly, new home sales are now at their slowest pace in 47 years. To complete the trifecta, housing starts fell 5.9 percent in February to 575,000 annualized units from a month earlier.
The magnitude of weakness in home sales is somewhat puzzling given that the extended homebuyer tax credit is in play. At this juncture, the tax credit has yet to boost first-time and move-up home buying. Perhaps as the April 30 expiration date approaches, more and more households will take advantage of the credit.
Although unusually harsh winter weather may be a factor for weak home sales, it is nevertheless, unnerving to experience such large drops in demand with the backdrop of record housing affordability and historic low mortgage rates.
Another negative trend for housing is the fact that existing home inventories are rising rather than falling. According to the National Association of Realtors, the inventory of existing homes available for sale rose 9.5 percent in February to 3.59 million homes, compared to only 3.28 million homes available for sale in January. To make matters worse, these numbers may be an underestimate of the real inventory situation since a meaningful number of foreclosure properties available for sale are not reported by Realtors so are not included in the NAR numbers.
On the positive side, job losses are now giving way to job gains. Non-farm payrolls rose by 162,000 in March compared to job losses of 14,000 registered in February. According to Moody’s Economy.com, underlying job growth appears to be running near 50,000 per month, adjusting for temporary census hiring and the effects of unusually bad winter weather. We have waited quite a while for a reversal of fortune in the job market and a positive job outlook is likely. Corporate profits have surged in recent months due to lower labor and borrowing costs. Combined with a substantial rise in equity values, businesses are regaining the confidence to hire again.
Looking forward, it is increasingly likely that the home sales numbers will improve in the not-too-distant future. Future job gains and a slight loosening in mortgage credit are expected to spur housing demand. In addition, upward pressure on mortgage rates and the pending expiration of the homebuyer tax credit (April 30) are expected to give households some urgency to rush into the market to take advantage for one last time historic low mortgage rates and an $8,000 tax credit ($6,500 for trade-up buyers).
At long last, the housing sector may be gaining some momentum.