What's to blame for dismal March home sales?

by Ryan Smith23 Apr 2014
Sales of new single-family homes took a tumble in March, posting a dismal seasonally adjusted annual rate of 384,000 units.

That’s down from February’s 449,000-unit pace and a 13.3% decline from March of last year. It also vastly underperformed economists’ projections of a 450,000-unit pace.

“These numbers are pretty weak,” National Association of Realtors spokesman Walter Molony told MPA. “…The real problem here is that in new single family construction, we’ve had six straight years of housing starts way below normal levels. They’ve been below a million. We’ve got data on housing starts going all the way back to 1959, and the average demand has been about 1.5 million. Since 2009 we’ve been below a million. We bottomed out in 2009 with an all-time low of 554,000 – one third of what it needed to be. They need to get up over a million to meet the underlying demand.”

Molony said the economy hasn’t been recovering fast enough to boost the housing market back to pre-crisis norms.

“Much of the demand (for new homes) is from new households being formed, young people going out and moving away from their parents’ house,” he said. “This has not been happening. Long-term underlying construction is predicated very heavily on new household formation, but that has been way below normal as well. It bottomed out in 2008 at 414,000. Job creation last year was disappointing. Not only were the numbers of jobs being created disappointing, but the kinds of jobs being created weren’t the kind you could get and go out and buy a home. We really need stronger job creation and better jobs to spark that part.”

He also said tight credit – for both buyers and builders – was one of the main things stalling the market.

“There’s a pent-up demand for home buying, but one of the things that’s been holding back home buying is tight credit,” Molony said. “It’s been particularly hard for first-time home buyers and single-income households. Single-income households typically don’t have the same credit as dual-income households, so it’s harder for them to buy.”

Tight credit is hurting construction companies as well, Molony said.

“Historically about 80% of the new home construction is done by small builders,” he said. “Because of the restrictive lending environment, that’s not happening. Small builders can’t get construction loans, so the only ones building are big companies with access to Wall Street money.

“We’ve kind of got a delicate thing going on,” he added. “We need easier credit, but if you ease credit on the buying side too much before you ease it on the building side, then you’ve got pressure on prices and we don’t want that. We need easier credit on the building side first, then on the buying side.”

Molony said the housing numbers so far this year have been disappointing to NAR analysts.

“Our forecast is that housing starts will be picking up this year, but so far it’s been really disappointing, so that might be revised downward,” he said. “Right now our forecast is 1.1 million, but it’s been kind of lackluster so far.”

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