The National Association of Realtors said Thursday that sales of existing homes fell 3.3 per cent to a seasonally adjusted annual rate of 5.04 million. April marked the second straight month of the sales rate topping 5 million homes. Purchases have recovered from a disappointing 2014 because strong job growth and low mortgage rates have generated more would-be buyers.
But that positive sign for the economy has also exposed a problem: Not enough people are listing their properties for sale to meet the demand. Only 5.3 months' supply of homes is on the market, versus an average of six months in a healthy market. The number of listings actually tumbled 0.9 per cent in April compared to a year ago.
The tight supplies have caused properties to fly off the market and prices to rocket upward. The median home sold in just 39 days last month, versus 52 days in March and 62 days in February. Sales levels dropped in the Northeast, South and West, but they edged up 1.7 per cent in the Midwest.
The median home price climbed 8.9 per cent over the past 12 months to $219,400. That's more than four times faster than average hourly wage growth. The median home value is now just $2,500 shy of the 2006 peak.
"With steady job growth, low mortgage rates, and easier credit conditions, there is fundamental support for housing," said Jennifer Lee, a senior economist at BMO Capital Markets. "But with prices heading up again, and inventories still tight, potential buyers may be a little more choosy in the buying process."
Unless more homes come onto the market, there is a cap on how much sales can rise as more buyers face bidding wars and are priced out of the market.
Many buyers have benefited from the recent hiring streak. Yet apartment renters reported in a Freddie Mac survey released this week that they are struggling to save for a down payment. This means that steady price hikes could cause demand to evaporate as the sales season approaches its usual crest in July.
The shortage shows the long reach of the 2008 financial crisis and the housing bust, which continues to haunt the sector even as the economic recovery approaches its seventh year. Millions of homeowners still owe more on their mortgages than their homes are worth — and they're unwilling to sell at a steep loss, depriving the market of inventory.
Nearly 17 per cent of mortgage holders were underwater at the end of 2014, according to the real estate firm Zillow.
The lack of supply should help prices rise to a level that fixes this problem. But too swift an increase also poses a destabilizing risk for the market. If home values accelerate too quickly, economists warn that more buyers will be priced out of the market and demand will fall.
One way to address the shortage would be to build more homes. The government reported this week that homebuilders upped the pace of construction in April to the fastest level since November 2007. But developers say that the process of planning new developments that could provide a greater inventory of homes can take at least a year.
Solid hiring and low mortgage rates have helped fuel the demand from buyers.
Over the past 12 months, employers have added 3.1 million workers, each of them with a new paycheque to be spent. The additional income has led to many economists to forecast an increase in home sales this year.
Mortgage rates remain below historical average, despite increases in recent weeks.
The average 30-year fixed rate was 3.84 per cent this week, according to the mortgage giant Freddie Mac. That average has dropped from 4.14 per cent last year.