The new normal

The Pending Home Sales Index (PHSI) decreased slightly (meaning 1.1%) in June as compared to May of this year. It is also 7.3% below a year ago.

According to the National Association of Realtors (NAR), despite the dip, the June PHSI is considered an average level of contract activity. However, June was the first reported decrease after three straight months of gains.

Lawrence Yun, the chief economist of NAR, believes the housing market is stabilizing, but still faces challenges. He attributes the positive signs of the market to moderating prices and improving inventory levels in some areas of the country. The challenges that remain are that housing inventory is down or flat in certain areas and price points and tight credit policies preventing buyers from getting needed financing.

What is motivating buyers to purchase? Rents are increasing four percent annually and is not making financial sense to continue leasing.

In the Northeast, the PHSI dipped 2.9 % in June and 3.2% down from 2013. In the Midwest, the PHSI increased slightly by 1.1% and is 5.5% below last year. In the South, the PHSI slipped 2.4% and is 4.3% below where it was a year ago. In the West, the PHSI went up slightly by 0.2% in June and was below 16.7% of where it was in June of last year.

The housing market recovery isn’t being slowed by a lack of demand, but rather by the limited supply of homes for sale. During the last 12 months, approximately 2.4 million jobs have been created and interest rates have remained low while first-time buyers are increasing as they no longer wish to live with family and friends.

The Current Population Survey for 2013 showed a decrease in the percentage of young people living with their parents. This was the first decrease since 2005. The percentage of people in the group aged 18 to 24 residing with relatives fell from 56 to 55 % in one year. One percentage point decrease represents 300,000 people seeking to own a home rather than live with relatives. A Harvard study indicates that 2.7 million more households will be created with people in their 30s who had also returned to live with their relatives.

First-time buyers are expected to become a greater segment of the housing market in the coming years. Typically, they constitute 40% of home buyers but recently, first-time buyers have constituted 35-38% of buyers according to Builder Survey.

Household formation rates of 1.7 million are usually experienced during economic recoveries. Despite tight credit policies and the amount of student-loan debt, new households are expected to have a significant increase in the near future.

According to Mr. Yun, we need about 1.5 million housing starts a year to keep up with the growing U.S. population. Housing starts have been around 50% of what is needed since the economic down turn. Fortunately, spring home inventory levels were higher this year as compared to last year. It was reported earlier that the single-family home inventory in Greenwich increased three percent when compared to January through June of last year.

 

Mary Ann Clark is a Realtor with Coldwell Banker at 177 West Putnam Avenue in Greenwich. Questions or comments may be emailed to [email protected] 

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