Lawrence Yun is chief
economist of the NATIONAL
ASSOCIATION OF REALTORS®.
Learn what the latest
economic indicators mean for
the real estate industry.
Prices & Availability
Prices & Availability
How to Ensure
Healthy Price Gains
The housing recovery is surpassing most expectations. Rising demand and many years of sluggish new-home construction have forced home
prices to rise at a near double-digit pace in many
parts of the country. The latest surveys from the
N;;;;;;; A;;;;;;;;;; ;; R;;;;;;;®, which
looked at foot tra;c at open houses and inquiries
from potential sellers to real estate agents, continued to point toward too many buyers chasing too
few sellers. Home prices should continue to rise
this year and likely next year as well.
Fast-rising home values are clearly good for
home owners, but price increases that are far in
excess of income growth are not good for buyers
and not a healthy development for the economy.
However, it’s important to keep in mind that demand is moving ahead in spite of the stringent
lending standards still in place. Fully one-third of
buyers are using cash.
Consider what demand would look like if under writing restrictions were dialed back to a more
reasonable level. That’s finally a possibility for
t wo reasons: Banks are sitting on piles of cash, and
the quality of recently underwritten mortgages
has been high. These conditions could persuade
banks to start easing overly strict requirements.
The additional demand in a more “normal” lending environment potentially would mean even
faster price growth. The only way to tame excessive price jumps is for more inventory to reach the
market. Investors could help here by selling properties ahead of their intended schedule to take advantage of rising prices.
The choke point today is from the slow recovery in new-home construction. Housing starts in
March finally crossed the 1 million mark for the
first time in five years. But 1. 5 million new housing units are needed annually to keep home-price
gains at a healthy, long-term level of around 3 percent to 5 percent a year. That balance seems unlikely this year as we will continue to see demand
outstrip supply, fueling exorbitant price increases
in some places. W
Home sales have been hovering at the 4. 9 million sales-pace
mark since fall of last year and aren’t likely to move up much unless more inventory comes onto the market. As long as markets
continue to see inventory shortages, home prices will continue
to rise, not a healthy development if household income gains
don’t keep up. All trend lines are from March 2012 to March 2013.
PENDING HOME SALES
EXISTING-HOME SALES PENDING HOME SALES EXISTING-HOME SALES
INVENTORY PRICES INVENTORY
PERCENT OF LOANS TO THOSE WITH FICO OF 740+ PERCENT OF LOANS TO THOSE WITH FICO OF 740+
Existing-home sales is a seasonally adjusted annual rate, which is
the actual rate of sales for the month, multiplied by 12 and adjusted
for seasonal sales di;erences. Pending home sales is an index
that measures housing contract activity. An index of 100 is equal
to the level of activity during 2001, the benchmark year. Inventory
measures the number of existing homes on the market at the end
of the month. Buyer and seller tra;c, current conditions, six-month expectations, and time on market derive from a monthly
REALTOR® Confidence Index. Results for March are based on
3,204 responses to 6,000 surveys sent to large and small real estate
o;ces. The survey asks practitioners to indicate whether conditions
are strong (100 points), moderate (50), or weak (0). Some data may
be revised from previous issues.