National Real Estate Market Update

Courtesy of Wells Fargo Securities:

Are Soft Home Sales Due to a Lack of Supply, or a Lack of Demand?

“Low inventories and the calendar took most of the blame for April’s disappointing reports on new and existing home sales. New homes sales plunged 11.4 percent in April, while an upward revision to the prior three months data by a cumulative 55,000 units certainly takes some of the sting out of April’s decline. However, the unusually large headline drop along with a less dramatic 2.3 percent drop in existing home sales and declines in both pending home sales and mortgage purchase applications raises the prospect that something else may also being going on. This past month’s soft spot in sales was somewhat surprising given the recent strength in builder confidence (Figure 1). The Wells Fargo/NAHB Homebuilder Sentiment Index rose 2.0 points to 70 in May, as both present and future sales indices rose during the month. Builder confidence is near its highest point of the cycle and buyer traffic is said to be solid. A lack of homes available for sale is certainly part of the equation. Unseasonably mild winter weather likely allowed the spring home buying season to get off to an earlier start than usual, leaving fewer homes for potential buyers to choose from in April. Easter also came in mid-April, which likely negatively impacted sales that month. The impact of these two twists was magnified by the seasonal adjustment process, which looks for a big increase in sales each April, and thus made the smaller-than-usual rise look much weaker than it actually was.

Even with April’s soft patch, housing is still on track for its best year this decade. Sales of new homes through the first four months of this year are running 11.3 percent ahead of sales for the same period last year and sales of existing homes are up 2.1 percent for the comparable period. Housing starts also declined in April, although the entire drop was in multifamily units. Starts of new single-family homes rose 0.4 percent and are running 7.0 percent ahead of their year-ago pace through the first four months of this year. Builders are selling virtually everything they build and a rising share of new home sales are for homes that builders have not yet started.”

Please click here to read the full report from Wells Fargo.