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Some short term meltdown expected in the US housing market!

US housing market

Adding to the confidence to the US economy was the unexpected resale to the third highest level in over a decade.  Inventory shortages have been steadily pushing up median prices and in May, and stood at $252,800 in June this year, surpassing last Junes number of $247,600 and was a healthy rise of 5.8% from May 2016 number, which stood at $238,900.  This number is a little surprising, given that Reuter was forecasting a decline of 0.5% to an overall estimate of 5.55 million, yet the sales stood at 5.62 million level during May.  The main reason ascribed to these healthy numbers is the continuing job market, which has been steadily reducing the unemployment rate, which now stands at a 16 year low.  Further, the recent downgrades in mortgage rates are helpful in accelerating home sales.  It is estimated that compared to one year ago, when it took 4.7 months to clear inventory, now this number stands at 4.2 months, exhibiting to a certain tightness in the market, which is allowing for the median price to remain robust.  However, inventory availability concerns are acute and NAR’s chief economist has remarked, “We have a housing shortage, we may even use the term housing crisis in some markets.”

US housing market
Total housing inventory grew 2.1% to 1.96 million existing home in May, but this still is 8.4% rate slower than a year ago, when it grew by 2.14 million and marks a continuous 24 consecutive monthly decline.  This is obviously reducing unsold inventory to new lows, but at the same time is taking prices to an unsustainable level specifically for the first time buyers.  NAR economist Lawrence Yun has added that current aggregate demand in the housing sector is indicative of a higher sales potential of the market, but would-be buyers have to wait.  This phenomenon is most pronounced in single-family housing who are experiencing restrictive choices, as prices have continuously escalated.  Having said this, single-family home sales have been steadily increasing and in May stood at a 4.98 level, nudging upwards from the April number of 4.93.  Compared on a YoY basis the growth was at 2.7%, when it stood at 4.85 million, as the median home price stood at $254,600 in May starkly up by 6% from a year earlier.

Observers link, the shortage in housing, primarily being driven by tight labor market conditions, which is actuating a heightened aggregate demand function, and also investors are holding up sales of properties, which again is restricting supply.  The restricted supply function is again bidding up the equilibrium housing prices

 

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