Residential Real Estate Market Overview: April 2017 Data

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1 Residential Real Estate Market Overview: April 2017 Data 2017 Mark A. Melikian Chief Valuation Officer 2800 River Road, Suite 460 The following is a market data summary of existing homes, employment rates and interest rates as reported by the National Association of Realtors, the U.S. Department of Labor and Freddie Mac, respectively. This report analyzes the real estate market nationwide. Real estate markets are localized and many individual markets will behave differently from national trends. APRIL 2017 SUMMARY: In April 2017, the following decreased year over year: The seasonally adjusted number of homes sold, the pending home sales index, the unemployment rate and mortgage interest rates. In April 2017, the following increased year over year: The median sales price and the month supply of existing homes listed for sale. On a regional level the South had the highest number of existing home sales and the West had the highest median price. The Midwest experienced a month over month increase in the number of seasonally adjusted existing home sales while all other regions saw month over month decreases. All four regions experienced increases in the median sales price month over month (see Figures 8 and 9). Report Highlights: New Home Construction and the Supply of Affordable Housing See commentary on pages Page 1 of 12

2 Market Overview: The median sales price of existing homes in April 2017 was $244,800. In March 2017, the revised median sales price was $236,600 and in April 2016 the median sales price was $230,900. This month s median sales price increased month over month by 3.5%, and increased year over year by 6% (see Figure 1). $250,000 $245,000 $240,000 $235,000 $230,000 $225,000 $220,000 $215,000 Median Sales Price of Existing Homes Figure 1 Source: NAR Page 2 of 12

3 Market Overview: The seasonally adjusted annual number of existing homes sold in April 2017 was 5,570,000. In March 2017, the revised number was 5,700,000 and in April 2016 it was 5,480,000. April s annual number of existing homes sold decreased 2.3% month over month and increased 1.6% year over year (see Figure 2). 5,800,000 5,700,000 5,600,000 5,500,000 5,400,000 5,300,000 5,200,000 5,100,000 Number of Existing Homes Sold Annually: Seasonally Adjusted Figure 2 Source: NAR Page 3 of 12

4 Market Overview: In a normal real estate market, there is typically a 4 to 6 month supply of housing inventory. The month supply of existing homes for sale in the U.S. was 4.2 in April In March 2017, it was 3.8 months and in April 2016 the month supply was 4.6. The month over month increase was 10.5% and the year over year decrease was 8.7% (see Figure 3) Month Supply of Existing Homes Listed for Sale Figure 3 Source: NAR Page 4 of 12

5 Market Overview: When a seller accepts an offer on a property, it is recorded into the Multiple Listing Service (MLS) as a "pending home sale." The majority of pending home sales typically close escrow within one to two months. A pending home sales index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. The seasonally adjusted annual rate of pending home sales in April 2017 was In March 2017, the revised rate was and in April 2016 the pending home sales rate was The month over month decrease was 1.3% and the year over year decrease was 3.3% (see Figure 4) Pending Home Sales Index: Seasonally Adjusted Figure 4 Source: NAR Page 5 of 12

6 Market Overview: The U.S. Department of Labor summarizes the National Unemployment Rate as follows: People with jobs are employed. People who are jobless, looking for a job, and available for work are unemployed. The labor force is made up of the employed and the unemployed. People who are employed, or unemployed and not seeking work, are not considered in the unemployment rate. Therefore, when someone gives up seeking work, they will not be included in these statistics. The unemployment rate among people seeking work in April 2017 was 4.4%. In March 2017, the rate was 4.5% and in April 2016 the U.S. unemployment rate was 5%. The month over month unemployment rate decreased 2.2% and the year over year unemployment rate decreased 12% (see Figure 5) National Unemployment Rate Figure 5 Source: US Dept. of Labor Page 6 of 12

7 Market Overview: Freddie Mac reports the interest rate on a 30-year fixed rate mortgage in April 2017 was 4.05%. In March 2017, the rate was 4.2% and in April 2016 the 30-year mortgage rate was 3.61%, which is an increase of 44 basis points year over year (see Figure 6) Year Fixed Mortgage Rates Figure 6 Source: Freddie Mac Page 7 of 12

8 Existing-Home Sales Regions Figure 7 Source: NAR Page 8 of 12

9 Market Overview: Of the 5,570,000 seasonally adjusted number of homes sold in April 2017 (see Figure 2), the regional breakdown is as follows (with percentage increase or decrease over last month): Northeast 730,000 (- 2.7%) Midwest 1,360,000 (+ 3.8%) South 2,300,000 (- 5%) West 1,180,000 (- 3.3%) Existing Home Sales Seasonally Adjusted Annual Rate by Region: April ,300,000 1,360,000 1,180, ,000 Northeast Midwest South West Figure 8 Source: NAR Page 9 of 12

10 Market Overview: The April 2017 median sales price by region is as follows (with percentage increase or decrease over last month): Northeast $267,700 (+ 2.2%) Midwest $194,000 (+ 6.4%) South $217,700 (+ 3.5%) West $358,600 (+ 2.6%) Median Sales Price Existing Homes by Region: April 2017 $358,600 $267,700 $194,500 $217,700 Northeast Midwest South West Figure 9 Source: NAR Page 10 of 12

11 New Home Construction and the Supply of Affordable Housing The current shortage of housing inventory, specifically affordable housing, across the country has been well documented in our previous reports. Most recently, last month s report analyzed how reduced inventory levels are impacting the residential real estate market. This inventory shortage indicates that more affordable new housing is needed. Typically, builders construct homes that sell for more, sometimes significantly more, than the local median home price. Statistics from the National Association of Realtors show that, in the first quarter of 2017, the nationwide median price for existing homes was $230,700 while the median price for a newly built home was $311,800, a difference of more than 35 percent. The number of higher priced, new construction homes on the market is available only to a limited pool of higher-earning buyers. This trend is examined by Diana Olick in her recent cnbc.com article; There are Tons of Newly Built Homes Just the Wrong Kind. In her analysis, Olick offers that of all home sales in April of 2017, only 11.9 percent were new construction while historically, new homes averaged 23.6 percent of all home sales. She concludes with the suggestion that an increased supply of new homes priced below $300,000 is needed to boost the inventory of affordable homes and increase the percentage of new home sales. Olick s analysis is accurate to a certain extent. Rather than saying all markets need new construction homes priced below $300,000, a more correct assertion is that the type of affordable new construction housing required by any market is relative to its local median home price. A $250,000 new construction home offered in a market with a median home price of $175,000 does nothing to increase affordable housing options. On the other hand, that same $400,000 new construction home being sold in a market with a $600,000 median home price will be a much-needed addition to the for-sale housing stock in that market. Page 11 of 12

12 So, why don t builders provide new housing at more affordable the prices? There are several challenges, those most cited by builders include high costs of land, labor and materials along with restrictive regulations and the high costs of building permits and fees. The costs of land, labor and materials are subject to local supply and demand. However, municipalities can be proactive to help reduce housing shortages. They can ease regulations and lower the costs of permits and fees associated with new housing construction. Builders too, can simplify their offerings and construct basic, starter homes. In fact, a small number of builders have recognized the need for more affordable housing and have begun offering smaller and simpler homes at lower price points. However, the challenge of how to encourage additional builders to provide a more affordable product may not be overcome easily. While some builders are beginning to produce lower priced homes, more builders would need to begin producing homes that sell much closer to the median sales price of an existing home in their local market to really make a difference in today s market. A builder that can deliver new homes at relatively affordable prices in their local market is certain to see demand for their product far outweigh supply. Page 12 of 12