Prices Climb High But Home Sales Dip in Q1 2018
This month, the National Association of Realtors (NAR) released its Q1 2018 housing report.1 NAR’s Chief Economist, Lawrence Yun, attributed the weak start to home sales in 2018 to a widespread shortage of homes. High buyer demand drove surges in median home prices for listings on the market in Q1 2018 as NAR reported the home prices climbed in 91% of metropolitan areas. Bidding wars and buyer competition become the new market norm.
The average nationwide jobless rate was 4.17% in Q1 2018. Employment and income gains are not affecting home sales as dramatically, however, as buyers across the country battle inventory deficiencies.
According to NAR, the five most expensive housing markets in Q1 2018 were:
- San Jose, California
- San Francisco-Oakland-Hayward, California,
- Anaheim-Santa Ana-Irvine, California
- Honolulu, Hawaii
- San Diego-Carlsbad, California
Yun explained that inventory plunged to record lows2 during the first three months of the year with an average supply of 3.5 months. A 6-month supply of home inventory is often considered “healthy” by economists. The analysis of March 2018 data indicated that the housing supply is 7.2% lower than March 2017 with 1.67M homes available for sale. Overall, Q1 2018 home sales were weighed down by rapid price appreciation spurred from supply and demand.
Yun said, “[Sellers] applied upward pressure on home prices in a majority of markets.” For Q1 2018, the national median home price was $245,000, a 5.7% improement year over year (YOY).
Regional Home Sales Analysis
- The region with the greatest slip in existing home sales in Q1 2018 was the Northeast with a decline of 8.5 quarter over quarter (QOQ) and 8.1% YOY.
- The South experienced positive growth with existing-home sales increasing 3.7% QOQ, maintaining relatively flat YOY performance. The median single-family home price in the South also rose 5.5% YOY to $220,400 in Q1 2018.
- Existing-home sales dropped 6.9% QOQ in the Midwest in Q1 2018, falling 1.8% overall YOY.
- The West had the lowest decline in Q1 2018 with existing-home sales falling 1.1 % QOQ to be just 2.2% below 2017 numbers. This region also had the most significant rise in median existing single-family home price with an 8.2% jump YOY to $371,300.
Projections and Predictions
Yun revealed his forecast at the 2018 NAR Mid-Year Legislative meetings. He said he anticipates affordability conditions, aided by a robust job market, will improve if homebuilders increase production of homes. Yun stressed the importance of builders committing to building affordable housing as baby boomers, millennials and investors are likely to all seek properties within a similar price point, specifically in the range of $200,000 - $250,000.
Chief Economist for Realtor.com, Danielle Hale, said, “We are starting to see new listings grow in recent months; the inventory shortage isn’t over, it took us years to get into an inventory rut, so it’s so it’s going to take us years to get out of it, but we do see signs of a turnaround.”
In a survey by Scotsman Guide, originators claimed that buyers believe mortgage rates will continue to rise. In 2018, the FED has increased rates fifteen times thus far. Scotsman Guide recently said two more additional hikes are expected this year along with direct impact on short-term loans, such as adjustable-rate mortgages. On May 10th, Freddie Mac stated that mortgage rates since January 2018 officially rose 50 basis points above the highest May 2017 rates.
Buyers are facing amplified budget pressure as home sellers raise and swell prices for available listings. Limited housing stock compounds this challenge. Also, if borrowing costs continue to grow, it is possible sellers might be willing to stay in their current homes longer, reluctant to apply for a new mortgage with a higher rate than experienced in recent years.
It seems 2018 will continue to present opportunity in the purchase market. Originators aiming to work in the purchase market should craft a short-term marketing plan to reach buyers with the maximum likelihood of placing an offer to purchase within 30 days or less. A digital marketing strategy is crucial in a fast-moving market as buyers are selecting professional partners such as loan originators and real estate agents to move forward with their transactions quickly.
Best Rate Referrals has been an expert in consumer finance for more than fifteen years. Our mortgage marketing experts can help you evaluate your strategy and define your goals. Are you ready to visualize your victory in the purchase market? Best Rate Referrals can help you reimagine the win and innovate your approach.
1 NAR releases quarterly median single-family price data for approximately 175 Metropolitan Statistical Areas (MSAs). In some cases, the MSA prices may not coincide with data released by state and local Realtor® associations. Any discrepancy may be due to differences in geographic coverage, product mix, and timing. In the event of discrepancies, Realtors® are advised that for business purposes, local data from their association may be more relevant.
2 NAR began tracking of metropolitan area median single-family home prices in 1979; the metro area condo price series dates back to 1989.