Report: Weak Inventory, Lower Affordability, Tight Credit Hindering Housing Recovery

Report: Weak Inventory, Lower Affordability, Tight Credit Hindering Housing Recovery
The recovery of the housing market continues at a slower-than-expected pace due to weak inventory, slowing demand, and rising prices, according to Auction.com's Real Estate Nowcast for March 2015 released on Tuesday. March's Real Estate Nowcast predicted that existing home sales for March would fall between 4.83 and 5.12 million on a seasonally adjusted annualized basis. The target number for existing home sales of 4.97 million is an increase of 1.9 percent month-over-month and 5.8 percent from March 2014.

"The housing market is continuing to recover, but at a slower, more incremental pace than what most people had hoped for in 2015," Auction.com EVP Rick Sharga said. "Three main problems continue to prevent more robust growth: extraordinarily limited inventory, especially at the entry level of the market; lower affordability, as home price increases have significantly outpaced wage growth; and tight credit for all but the most highly-qualified borrowers. This adds up to an especially difficult ecosystem for first-time homebuyers to navigate, and we continue to see less home sales to that segment of the market than what we've seen historically."

The report found that the target sales price for existing homes was $204,165 in March, a year-over-year increase of 3.8 percent. While home prices are increasing, their growth is decelerating, likely due to a realization of the recent weakness in sales, according to Auction.com.

According to Auction.com's chief economist, Peter Muoio, the deceleration of price growth could slow affordability deterioration, thus boosting home sales – especially if the predicted wage growth comes to pass.

"Despite some recent softness in several economic indicators, the US economy – especially the labor market – appears to be on solid footing," Muoio said. "Unemployment is descending, voluntary quits are increasing, and consumer confidence has breached the 100 index level mark, bringing it firmly back into 'normal' territory. These are all positives for future housing demand and we continue to expect the housing recovery, now in a winter-like dormancy, to show signs of growth as the year progresses."

Auction.com's Real Estate Nowcast included findings similar to those in Fannie Mae's March 2015 Economic and Housing Outlook released on Monday, which reported slower GDP growth in the first quarter due to "temporary factors," among those being a weak inventory. Fannie Mae forecasted that wage growth would catch up to employment gains before the end of the year and that the economy would "drag housing upward."

Recent reports by the National Association of Realtors (NAR) also fall in line with the forecasts of Auction.com's Real Estate Nowcast. February existing home sales were at 4.88 million, according to NAR, which falls in the rate of Auction.com's revised range of 4.87 to 5.19 million for the month. NAR's reported existing sales home price of $202,600 for February was close to Auction.com's forecasted price of $201,077 for the month – a year-over-year increase of 7.5 percent.

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