Current home sales data for the year 2016 is beginning to come in, and the statistics are interesting for real estate investors, buyers, and sellers. Home prices across the board are increasing in almost every market. However, home sales are going down. This flies in the face of basic supply/demand economics, but there are good reasons for it. Below is an analysis of the current 2016 home sales data and how these stats might trend moving forward in the year.
How much did home sales rise in 2016?
As the authority on home sales, the National Association of Realtors (NAR) reported that homes sales went up anywhere from one to three percent around different areas in the United States. However, this rise was not uniform across the nation. The central part of California experienced one of the largest rises in home prices of any market in the nation at around seven percent. Without this rise in the West, home sales actually decreased 8.1 percent from February to March. Another report from the Mortgage Bankers Association showed that home sales in March increased 25 percent from last year.
Why did home sales rise in early 2016?
On the backs of both reports, real estate professionals across the board agreed that rising prices had a great deal to do with the limited supply that buyers faced in the early part of the year. Home builders simply did not build as much, and the rising prices on houses that were being sold cut out new buyers from the market. Because there were not any new faces hitting the market, builders had even less of a reason to build. However, these same professionals and analysts say that the spring 2016 season will continue to be a successful one because of the low mortgage interest rates and the solid fundamentals of the housing market in general.
Why was home demand low in early 2016?
Home demand was low in 2016 because of the lack of new home buyers in the market. The real estate market tends to rely on new home sales in order to show growth, and the lockout that first time and low credit home buyers are experiencing is hurting demand in general. The government is responsible for backing 97 percent of loans on the market, and the fact that this cannot even bolster new home building is a testament to how much the prices are rising.
I thought that the sales of any product always increased with demand. What happened to the housing market?
The real estate market has always been a unique animal in that increased demand for housing does not always bring in higher sales. First of all, there are many sales that are blocked for various reasons by the seller, including lack of trust in the buyer, low down payments and earnest money deposits, or bad contract terms. Buyers back out of deals because they cannot secure financing or because a contingency list is not fulfilled. Just because there are more offers on houses does not mean there will be more sales. Secondly, the housing market is defined by income more than perhaps any other market or industry: A house that costs $2.5 million may be coveted by everyone, but the majority of would-be home buyers will not even be able to place a bid on it. Demand is not indicative of sales at all in the housing market, because the most highly demanded properties are out of the reach of most people.
What will the market look like for the rest of the year?
Most real estate industry professionals, including NAR chief economist Lawrence Yun, say that the market demand will continue to rise over the course of 2016. People will still be applying for government loan programs and bidding on houses. Sales are forecasted to increase over the active spring house buying season. However, prices will continue to rise because of the supply squeeze and the unequal rise in prices across different parts of the United States. The west may continue to experience a rise in property sales and prices; however, most of the other parts of the nation without a surplus of capital will not be able to keep up. Because the West basically accounted for the entire rise in the housing market over the first part of 2016, the overall statistics may not reflect the truth of a local area. Metropolitan areas such as San Diego and New York will continue to experience a rise. However, the homeowners and potential buyers who are living in rural areas may experience a completely different market.
How can I utilize this data to my benefit?
If you have any leverage when it comes to government loan programs, use it. Because the supply squeeze will likely create a short term rise in prices, you can gain some short term equity in your property if you can get in. Whether you are trying to flip the property or live in it for an extended period, you will gain financial leverage as long as you can become a homeowner before the market begins to turn. Focus on markets that will continue to have low prices in rural parts of the United States, not New York.
2 Point Highlight
However, these same professionals and analysts say that the spring 2016 season will continue to be a successful one because of the low mortgage interest rates and the solid fundamentals of the housing market in general.
Secondly, the housing market is defined by income more than perhaps any other market or industry: A house that costs $2.5 million may be coveted by everyone, but the majority of would be home buyers will not even be able to place a bid on it.
