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Is Housing Springing Forward. . .Or Falling Back?

American Flag House BHThe housing market has experienced a few setbacks in the last month or two, among them continuing tight inventory, a decline in housing starts, and inconsistent existing-home sales numbers.

With many analysts early in the year having predicted a robust spring season for the housing market, the question remains as to whether or not that will come to pass as spring is in full swing.

“Buyer demand remains sturdy in most areas this spring and the mid-priced market is doing quite well,” NAR Chief Economist Lawrence Yun said. “However, sales are softer both at the very low and very high ends of the market because of supply limitations and affordability pressures.”

There have been some signs that the predictions that housing will have a breakout year in 2016 will come true. Existing-home sales rebounded somewhat in March from February’s huge disappointment (by 5.1 percent up to an annual rate of 5.33 million, after a decline of 7.1 percent in February) and the median existing-home sales price grew by 5.7 percent up to $222,700—the 49th consecutive month of year-over-year price appreciation—according to the National Association of Realtors (NAR).

Freddie Mac recently reported in its April 2016 Economic Outlook [1] that housing is expected to be an engine of growth for this year despite the darkening economic forecast—largely due to increased refinance activity, which received has received a boost from consistently low mortgage rates.

“At the same time, the nation faces significant housing challenges.”

Timothy Mayopoulos, Fannie Mae CEO

“Construction activity will pick up as we enter the spring and summer months, and rising home values will bolster consumers and help support renewed confidence in the remaining months of this year,” Freddie Mac stated in the report.

Fannie Mae CEO Timothy Mayopoulos noted in a public address in Washington, D.C., [2] on April 20, that housing had its best year in 2015 since before the crisis, citing increasingly declining numbers in the areas of delinquency rates, foreclosure starts, and underwater borrowers. However, he said there are concerns moving forward.

“As we look ahead, we see continued improvement for housing in 2016, but at a more moderate pace than in 2015,” Mayopolous said. “At the same time, the nation faces significant housing challenges. We have an affordability challenge, in both the single-family purchase market and in the multifamily rental market.”

Likewise, Fannie Mae Chief Economist Doug Duncan stated in the enterprise’s April 2016 Economic and Housing Outlook [3], “Sustained improvement in the labor market and personal incomes among young adults should draw more potential homebuyers into the housing market, but many will continue to face affordability challenges. Home price growth has been rising at a faster clip than incomes, and the increasing supply of single-family housing is skewed toward larger and less affordable homes. These factors continue to weigh on housing affordability, particularly for first-time homebuyers.”

There have been signs that the tight inventory that has plagued the housing market for many months now might finally be loosening up, however. NAR reported that the number of existing-homes for sale [4] jumped by nearly 6 percent over-the-month in March up t0 1.98 million units (though it was still down by 1.5 percent year-over-year) and that unsold inventory was up from 4.4 months to 4.5 months from February to March. For new home sales [5], HUD and the Census Bureau reported that inventory rose from 205,000 homes in February up to 246,000 homes in March. The current inventory for March (based on March’s sales pace of 511,000 annually) the current inventory marked a 5.8 month supply, up from 5.1 percent a year earlier.

But on the flip side, single-family housing starts [6] were down significantly in from February to March (from 841,000 down to 764,000), according to HUD and the Census Bureau.