Realtors: Home Prices Are at Unhealthy Levels

April 29, 2015 No Comments »
Realtors: Home Prices Are at Unhealthy Levels

If you’re thinking about buying a home, but concerned home prices have risen just a little too much lately, take heed of this warning.

In the latest pending home sales release from the National Association of Realtors, chief economist Lawrence Yun noted that a supply/demand imbalance “has pushed home prices to unhealthy levels.”

The issue is that there aren’t enough homes for sale, which I touched on last week. This has caused home prices to surge because of very limited supply and fairly healthy demand.

So while it’s seemingly great news that homes are selling quickly and often for more than the original listing price, it also means some buyers might be getting in over their heads.

Yun added that home prices are now at levels “nearly four or more times above the pace of wage growth” in some areas of the nation, which could lead to a serious affordability crisis in the near future.

His solution, as always, is more inventory, both new and existing homes, which would correct the imbalance and lead to more realistic asking prices and fewer bidding wars.

Median Days on Market Lowest Since Last Summer

But that doesn’t appear to be in the cards given how quickly homes are selling these days, especially since they aren’t being replenished at any meaningful rate.

Last month, homes sold at a faster clip than in any month since last summer. The median days on market was just 52 days in March, the lowest since 53 days in August 2014.

So yes, the spring home buying season is in full swing, but it’s being driven more by a lack of inventory than anything else.

Still, pending home sales (signed contracts to buy homes) increased in March for a third straight month and remain at their highest level since June 2013.

And this forward-looking indicator is now 11.1% above March 2014 levels after increasing year-over-year for seven consecutive months.

In March, pending home sales increased 4% in the South and 1.7% in the West, while falling 1.5% in the Northeast and 2.5% in the Midwest.

Yun said demand has been seen in areas of the country with solid job growth, particularly in metropolitan areas.

Traditional Buyers Take Center Stage

Despite the inventory concerns, Yun did say the uptick in signed contracts was good news, and said the mix of buyers is even better news.

Apparently the share of traditional home buyers (non-investors) is finally beginning to normalize.

Per the March Realtors Confidence Index (RCI), sales to investors accounted for only 15% of home sales in the first quarter of the year, down from 19% a year earlier.

And only 26% of transactions were all-cash sales during the first three months of 2015, down from 33% in the same period a year earlier.

He believes this marks a change from speculating flippers to activity driven by actual long-term homeowners.

My only fear is that the shift comes at a time when home prices are becoming unaffordable again.

In other words, investors got in while things were cheap and now seem to be taking profits while prices are high again.

Sadly, this could mean that a whole new crop of homeowners (potentially Millennials) will be saddled with mortgages they can’t afford, especially if home prices take a turn and motivation to keep paying wanes.

After all, new home buyers will surely recall that there was little consequence to walking away from an upside down mortgage just a few years ago.

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