Home Prices Up But Gains Slow, Sales Below Potential

Carrie Rossenfeld Residential & Mixed Use

Two Orange County–based housing research and finance firms—Irvine, California–based ATTOM Data Solutions and Santa Ana, California–based First American Financial Corporation—have released Q2 reports on the national housing market. Both point to the constraints of a market where inventory is low and not looking to increase significantly any time soon.

According to ATTOM, median-home price appreciation decelerated in the second quarter to the slowest pace in two years, but it was still up on an annual basis for the 25th consecutive quarter. Median home prices were above pre-recession peaks in 65 percent of 122 metro areas analyzed in the report, up from 54 percent of markets in Q1.

ATTOM also reports that home sellers in Q2 realized an average gain of $58,000 since purchase, the highest average home-seller gain since Q3 2007. Homeowners who sold in Q2 had owned an average of 8.09 years, the highest average homeownership tenure since ATTOM began tracking in Q1 2000.

Price appreciation based on median price per square foot accelerated for homes selling for more than $1 million in Q2, and this was the case in 65 percent of 49 counties ATTOM analyzed with at least 100 sales above $1 million during the quarter.

With regard to home sales, First American reports that potential existing-home sales increased to a 6.12 million seasonally adjusted annualized rate (SAAR), a 1.1 percent month-over-month increase. This represents a 63.8 percent increase from the market potential low point reached in February 2011. The market potential for existing-home sales increased by 3.3 percent compared with a year ago, a gain of 194,100 (SAAR) sales. Currently, potential existing-home sales is 1.17 million (SAAR), or 16.1 percent below the pre-recession peak of market potential, which occurred in July 2005.

“In June, the housing market continued to underperform its potential,” says Mark Fleming, chief economist for First American. “Actual existing-home sales are 4.2 percent below the market potential for home sales, according to our Potential Home Sales model, which estimates the expected level of existing-home sales based on market fundamentals. The market for existing-home sales is underperforming its potential by an estimated 256,000 sales at a seasonally adjusted annualized rate (SAAR) and has underperformed its potential for 58 consecutive months.”

Fleming blames the lack of housing supply for the persisting gap. “The inventory of homes for sale in most markets remains historically tight, yet demand continues to rise as millennials further age into homeownership. The housing market is not plagued by a decline in demand, but rather a shortage of supply. The result — surging house prices.”

Fleming also points fingers at homeowners being rate-locked and facing a “prisoner’s dilemma” of not being able to find a home to buy if they should sell. “One solution is to build more new homes and increase the overall stock of housing units, but the number of new homes constructed per household is at its lowest level in 60 years of record-keeping, according to the Federal Reserve Bank of Kansas City. If existing homeowners won’t supply their homes for sale then increasing the pace of new home construction is necessary to alleviate the supply shortage in the long run. “However, existing homeowners will need to start selling their homes to provide any immediate supply relief to the market.”