A Plea for More Inventory
April 24, 2013
The figures for sales of existing homes in March were released Monday (April 22) and, since the report’s data are quite reliable—and very important, for reasons we’ll review here—it’s worth looking closely at the numbers and at market reactions to them.
Recall that investors are giving the existing home sales figures even more importance than usual…largely because the Federal Reserve decided to provide stimulus to the overall economy in part by focusing on the sales of homes, basing this decision largely on the fact that more homes will sell as more potential buyers feel greater job security.
Indeed, the Fed is to a major extent judging the success of its latest Quantitative Easing program on what happens in the jobs market. In theory, as additional jobs are created in a sustainable fashion, the economy has less need of external stimulus.
So we watch the jobs numbers closely with the Fed and, as a result, we watch to see if more people are feeling enough confidence to invest in a personal residence. The Fed, after all, has been keeping mortgage rates enticingly low, which should draw many more buyers into the marketplace.
One of the problems with this theory, of course, has been the fact that there just haven’t been enough homes for sale, and sales have therefore been slower than everyone had hoped. It is also important that the economy hasn’t been creating a bumper crop of new jobs—so we are experiencing opposing forces here, with each gain in sales (and jobs) countered by a foot on the brakes, placed there by a lack of available inventory and jobs.
Sales of existing homes, as a result, actually fell from February to March by 0.6%. And, because of the lack an adequate number of homes for sale—a classic supply-and-demand situation where more buyers want homes than there are homes to buy—the median price tag on a home rose by 6.2% from February to March and by 11.2% over the past year.
It is clear that most sectors of the American economy would benefit greatly if more homes came to market and more were built and readied for sale. Most economists believe they will—yet there is a believe-it-when-we-see-it feeling in the air.
Mortgage rates seem to be rising based on the strength of Treasury securities and the wish among international investors for a safe harbor, away from the unpredictable moves of foreign currencies. We watch the unfolding drama with hope, though, because of the increasingly good possibility that more homes will soon come to market. As was recently reported in USA Today, “The supply of newly listed homes for sale is starting to show signs of keeping pace with buyer activity in some of the nation’s hottest real estate markets.”
Average Interest Rate
30-Year Freddie Mac Fixed-Rate Mortgages