The U.S. housing market failed to provide the lift to the
economy over the past year that many analysts expected. It enters a new year
with few signs pointing to either a renewed breakout or a sharp slowdown. New
data released this week showed that contracts signed to buy previously owned
homes rose to the third-highest level of the past year, the latest sign of how
housing demand firmed up in 2014 after a sluggish start.
The National Association of Realtors said Wednesday that its
index measuring pending home sales in November, reflecting sales that have gone
into contract but haven’t yet closed, rose 0.8% from October and 4.1% from a
year earlier on a seasonally adjusted basis. That represents the largest
year-over-year gain for the index since August 2013. But as a whole, the
housing market fell short of expectations amid tepid demand, rising prices and
continued complaints from buyers about the quality of inventory.
After a two-year rebound, housing demand faltered halfway
through 2013 amid inventory shortages, rising prices and a sudden increase in
mortgage rates. Demand stayed soft in early 2014, during a particularly cold
winter, but improved in the summer, a period during which mortgage rates
floated down. The average 30-year fixed-rate mortgage stood at 3.87% for the
week ended Wednesday, according to Freddie Mac, near its lowest level of the
past year.
Sales of previously owned homes are running around 4% below
the year-earlier level through the first 11 months of 2014. Still, sales
climbed throughout the middle of the past year, from a 4.59 million seasonally
adjusted annual rate in March to 5.25 million in October. They slid 6% in
November to a 4.93 million rate, according to the National Association of
Realtors.
News Corp, owner of The Wall Street Journal, also owns Move
Inc., which operates a website and mobile products for the National Association
of Realtors.
Sales of new homes have been essentially unchanged over the
past year, falling far short of economists’ expectations for double-digit gains
in new home sales. That’s happened in part because builders have focused on
constructing larger, more expensive homes.
Broad sales measures don’t fully capture other dimensions
the housing market’s recovery. In particular, the share of homes selling out of
foreclosure accounted for as many as a third of home sales in 2012. The share
of distressed sales has fallen sharply, to around 9% in recent months. The
upshot is that traditional sales now account for a far larger share of the
market—a sign of improvement.
Home prices tell a similar story. After falling nearly
one-third from their peak in 2006, prices began rebounding sharply in February
2012 and since then have risen nearly 25% through October, according to the
S&P/Case-Shiller index.
Some of the price declines were exacerbated by a glut of
foreclosures. The subsequent rebound reflected increased investor demand for
those bargain-priced properties, most of which were either quickly repaired and
flipped for a profit or held off the market as rentals.
As foreclosures have faded and investor-purchasers stepped
back from the market, price gains have slowed. In October, home prices had
increased 4.6% from their year-earlier level, compared to a year-over-year gain
of 10.9% in October 2013.
An open question in the coming year is whether price gains
stabilize at those lower levels or whether they weaken further. Research firm
Zelman & Associates expects price gains of 4% in 2015 and 3% in 2016.
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