Friday, August 22, 2014
Inquirer Daily News

Home prices soar as sales stagnate

Economics in a nutshell: The strong gains that had been evident in the housing market are dissipating.

Home prices soar as sales stagnate

For-sale sign. BILL SIKES / Associated Press
For-sale sign. BILL SIKES / Associated Press

INDICATOR: March Existing Home Sales

KEY DATA: Sales: down 0.6%; Year-over-Year: up 10.3%; Median Prices (Year-over-Year): up 11.8%

IN A NUTSHELL: “Home prices are soaring even as sales are stagnating.”

WHAT IT MEANS: Existing home sales eased a touch in March as the demand for housing seems to have plateaued. That is true for both single-family and condo units. For the past five months, sales have ranged between 4.90 million units annualized and 4.96 million units, a very tight shot pattern. Sales were flat in the Northeast, up modestly in the Midwest and down modestly in the South and West. In other words, not a whole lot of changes were going on. In part, that may be due to the relatively modest level of inventory on the market, which is helping drive up the price of houses. The increase over the year was the largest since November 2005. The jump in prices, though, may be having the desired effect on supply. After having bottomed in January, inventories have increased over nine percent in the past two months. With the big sales period starting and with more people seeing that they just might be able to sell their homes for a decent price, I expect that the number of houses being listed should continue to increase. As for distressed homes, they were the smallest percentage of sales since the National Association of Realtors started following that number. That is good news as it indicates that the market is moving back toward more typical buyers and sellers and is less dependent upon investors.

MARKETS AND FED POLICY IMPLICATIONS: The housing market, like a number of other segments of the economy, has started to hit a wall. It is not faltering: It’s just that the strong gains we had been seeing are dissipating. That is not surprising as we are beginning to reach more normal levels of sales, which makes large increases more difficult. The rise in prices and more limited supply, especially of distressed homes, are playing a role in the moderation. But there is also the economy itself. I know that many would like to believe that you can cut government spending and raise taxes without doing any harm to the economy. But that is just not the case, as we are starting to see. So we have a variety of factors at work that are restraining housing though not stopping the progress. With investors wondering if the rally went too far, another number that has disappointed cannot help. On Friday, we get the first reading of how the economy did during the early part of the year. It should be pretty good. But that was then and with the markets having hit record highs, some caution only makes sense given that second quarter growth is not likely to be nearly as solid as what we had during the first quarter.

About this blog
Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm in Bucks County. He advises companies across the country on the risks and opportunities that economic developments may have on the organization’s operating environment. An accomplished public speaker, Joel’s humor and unique ability to make economics understandable have brought him a wide following. Reach Joel at joel@naroffeconomics.com .

Joel Naroff
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