The housing market has been sluggish in many markets over the past six months, after last year’s double-digit appreciation. But researchers at the real estate brokerage Redfin say they see signs that the housing market is now edging back to normal. In a new report, they say they expect the market in urban areas to regain its footing over the second half of 2014.
“The second half will not be without its wobbles,” Redfin researchers note on the brokerage’s blog. “The housing market will have to jockey between poor economic indicators and pent-up buyer demand. But the housing market can maneuver around the juggernaut of subpar long-term economic fundamentals, based on the very real difference between this year and any other year post-crisis: Housing is now edging back to normal.”
Here are some signs that that the second half of the year will be brighter for real estate:
Sales are inching up. In 2013, home sales posted the strongest year since the recession, and they’re finally catching up in 2014. Existing-home sales increased 4.9 percent in May to a seasonally adjusted annual rate of 4.89 million. While sales remain about 5 percent below May 2013 levels, the 4.9-percent month-over-month gain in May was the highest monthly rise since August 2011, according to the National Association of REALTORS®. According to Redfin’s analysis, sales are trending up year-over-year in eight out of the 30 markets it tracks, including Atlanta (8.2 percent), Charlotte (8.3 percent), Seattle (2.3 percent) and Oakland (8.6 percent).
Foot traffic shows some signs of rebounding. NAR’s REALTORS® Confidence Index shows that foot traffic eased 1.6 points to 44.5 in May (readings below 50 usually indicate more than half of the 200-some markets are reporting weaker foot traffic than the same month a year ago). But NAR notes in the report the foot traffic index has improved steadily from the “weak spring market” and is now getting “on par with last year.” Indeed, Redfin’s analysis shows the number of customers going on tours with its agents in June was up 27.1 percent from a year ago – that would be bucking typical seasonal trends, which tend to peak in May. “This indicator of buyer demand continues to strengthen as we head into the second half of the year,” according to Redfin’s Research Center. “The key question is whether mortgage supply from banks can meet the increase in demand or whether buyers with large amounts of cash on hand will continue to dominate the market.”
Price growth is becoming more sustainable. After double-digit growth last year, home prices are moderating. In May, the median existing-home price for all housing types was $213,400, a 5.1 percent increase over last year. “Rising inventory bodes well for slower price growth and greater affordability, but the amount of homes for sale is still modestly below a balanced market,” Lawrence Yun, NAR’s chief economist, said in a statement releasing May’s existing-home sales numbers. “Therefore, new home construction is still needed to keep prices and housing supply healthy in the long run.”
Housing inventory is inching up slowly. Housing inventories nationwide at the end of May rose 2.2 percent to a 5.6-month supply at the current sales pace, down slightly from 5.7 months in April, according to NAR. Unsold inventory is 6 percent higher than year-ago levels. Redfin’s analysis shows that in 22 of the 30 markets it tracks, there were more homes for sale than last year with the largest year-over-year increases in Riverside-San Bernardino, Calif. (28.1 percent); Phoenix (25.2 percent); and Orange County, Calif. (24.6 percent).
“Though the main long-term drivers of housing activity remain stalled — namely below average growth in median household income, labor force participation, bank lending and household formation — metro markets continue to get a boost from pent-up demand caused by the low inventory that plagued housing for the past two years,” Redfin researchers note.