Five Takeaways: Where is the U.S. Housing Market Headed?

WSJ

By NICK TIMIRAOS

Tuesday’s housing reports paints a picture of a housing market that may slowly be gaining some balance.

Home prices aren’t going up as fast as they were a year ago, when talking heads were buzzing about a potential bubble. And sales of new homes, which have struggled to increase from relatively low levels of a year ago, posted huge gains in May, according to the Commerce Department.

Here are five takeaways:

1. If the May figure of 504,000 sales at a seasonally adjusted annual rate isn’t revised down, this would put sales of new homes at their highest levels in six years.

It also makes up for a crummy winter.

New home sales are now running 1% ahead of last year’s January-through-May level.

That said, May’s large jump in new home sales should be taken with a grain of salt, because the sales report can be subject to revisions. Dan Oppenheim, an analyst atCredit Suisse, wrote Tuesday that the number was “too good to be true.” Large, national home-builders have said in recent months that home demand has perked up in April and May after a slow start to the year, but not at the magnitude implied by May’s figure from Commerce.

2. Sales have been soft, in part, because builders have been slow to ramp up production. While inventories are still very low, they are up 16% from last year.

Caught last year with a surge of demand and a shortage of supplies, builders boosted prices. As sales have slowed and builders have increased production, they’ve cut back on those price increases. Several executives have conceded that prices probably went up too fast last year, especially after the unexpected jump in mortgage rates that pinched affordability last summer.

3. The S&P/Case-Shiller home-price index, meanwhile, showed that home prices in April rose 10.8% from a year ago. The large yearly increases over the past year have reflected continued declines in the share of homes selling out of foreclosure, since those homes tend to sell at bigger discounts.

4. But on a monthly basis in April, home prices went up by just 0.2% on a seasonally adjusted basis, versus a 1.2% increase in March from February.

Seasonally adjusted figures can be squishy, though it’s clear that home prices aren’t rising as briskly as they were last year.

A separate index, from the Federal Housing Finance Agency, showed that home prices were flat in April from March, after rising by 0.7% in March from February.

If you’re a homeowner who wants to sell, that’s not exciting news. But if you’re looking to see continued gains in the volumes of homes sold every month, a slowdown in price appreciation is welcome.

5. Even though home prices are up nearly 25% from their early 2012 levels, they’re still down 18% from their 2006 peak. There’s considerable variation, of course, from one city to another. Prices in Denver and Dallas have reached new highs. Others, such as Miami and Phoenix, have posted double digit increases over the past year, but prices are still off of their peak by more than a third.

Prices are likely to cool down further as more supply comes to market and as the distressed-sales dynamic fades. But if builders are able to sell more homes, this would be a positive sign for a housing recovery that so far has struggled to shift into second gear, moving from a market dominated by investors to one with more traditional owner-occupant buyers.