The Wells Fargo Economics Group released its Housing Chartbook for May 2014, which found that most markets are "wildly out of balance" from inflated home prices driven by investor purchases as well as exceptionally tight inventories. The group said that the lack of a rebound in home sales this spring has reinforced their view that there was more than harsh winter weather behind the recent slide in home sales and mortgage applications. The group notes that the road to housing recovery will be longer—and much bumpier—than expected.
The group believes housing demand is still reeling from last spring's spike in mortgage rates. They commented that a 70-basis point rise in mortgage rates coupled with a 6-point 2 percent rise in prices resulted in a 17.1 percent jump in monthly principal and interest payments. Payments on an existing home, irrespective of a slight dip in home prices, rose 11.9 percent. Consumer confidence in purchasing a new home within six months fell in May to 4.9 percent, which was below the 12-month moving average of 5.7 percent.
Measuring new homebuilding against employment numbers—which only recently recovered from their recessionary decline—the National Association of Realtors found that historically, there is one new home built for every 1.5 jobs added to the economy. As of the first quarter, 32 states and the District of Columbia are above that ratio, meaning job growth has far outpaced new construction over the past three years. NAR believes that a majority of states are constructing too few homes, which will hamstring supply and slow home sales.