Despite Low Inventory, Home-Sales Numbers Amaze
Smashed” isn’t exactly the word for a modest 2.4 percent increase, but considering it is on top of a 15.7 percent record-setting increase in 2013 sales, this further 2.4 percent increase to 19,154 home sales in 2014 is unprecedented. Coupled with a 6.4 percent increase in the median home price, the total volume for 2014 was $6.23 billion – the first time sales have broken $6 billion mark, and an 8.2 percent increase from 2013.
All areas racked up higher selling prices, ranging from a 12 percent jump in Broomfield County to 5.5 percent in Boulder County, and sales were pretty well up in all areas except for the 4.3 percent drop in Boulder County.
Looking back, this is a tale of three markets. In the early part of this century, from 2001 to 2007, sales were very steady, with an average of 16,848 homes per year and the median price increased 19.2 percent from $192,900 to $229,980. Then the recession hit, and sales for the next four years averaged 14,020 and the median price dropped 4.4 percent to $219,900. The recovery, which started in 2012, has seen home sales average 18,002 per year and the price has increased 20.5 percent to the current $265,000. A 19.2 percent increase over seven years is a pretty sustainable figure. The 20.5 percent price increase in the last three years is pushing the envelope.
Given the lack of inventory, the 2014 sales are amazing. The number of homes for sale during the year averaged about a two-month supply, only about a third of the supply needed for a market balanced between supply and demand. Since peaking at 6,500 homes for sale at the end of July, the supply has dropped each month to the current 2,421 of net active listings. We forecast a demand over the next six months of 9,000 homes, meaning the current supply is equivalent to about six weeks when a six-month supply is considered a balanced market.
One of the reasons for the shortage of supply is the lack of new-home construction. Sales of new homes listed through IRES, the local multi-list service, totaled 2,473 in 2014, which is 13.4 percent of the total sales. This is an improvement from the 2,148 in 2013 but, from an historical perspective, new-home construction is about half of what it was earlier.
For the past seven years, new-home sales have averaged 1,814 per year, or 10.6 percent of total sales. In the previous seven years, new-home sales averaged 3,481 or 20 percent of total sales. The construction we need to keep up with demand and to replace existing inventory is probably at least 20 percent, or something like 4,000 homes per year. We are way behind the curve, and it is going to take a long time to catch up.
As for the new year, the good news is that mortgage interest rates are predicted to stay historically low, in the 4 – 5 percent range for this year. Plus there is help available with low down payment loans and the mortgage interest premium has been reduced. Mortgage payments are currently much more affordable than rent, particularly when you calculate the tax benefit of writing off mortgage interest.
This will continue to create a demand for homes, both from investors looking to take advantage of high rental rates and from buyers looking for the advantage of owning versus renting.
For 2015, we expect the demand for homes to continue to be strong, putting pressure on prices. If we can find enough homes to sell, the market could reach 20,000 homes at a median price of $280,000 for a total sales volume of close to $7 billion!
Dave Pettigrew is a real estate broker at at Ascent Real Estate Professionals, 2700 S. College Ave., Fort Collins. Contact him at FCRealtor@msn.com or 970-282-9305.
“Smashed” isn’t exactly the word for a modest 2.4 percent increase, but considering it is on top of a 15.7 percent record-setting increase in 2013 sales, this further 2.4 percent increase to 19,154 home sales in 2014 is unprecedented. Coupled with a 6.4 percent increase in the median home price, the total volume for 2014 was $6.23 billion – the first time sales have broken $6 billion mark, and an 8.2 percent increase from 2013.
Housing Markets Inch Toward Full Recovery
Markets in 59 of the approximately 350 metro areas nationwide returned to or exceeded their last normal levels of economic and housing activity in the third quarter of 2014, according to the National Association of Home Builders/First American Leading Markets Index (LMI), released today. This represents a year-over-year net gain of seven markets. The index’s nationwide score moved up slightly from .89 in the second quarter to .90, meaning that based on current permit, price and employment data, the nationwide average is running at 90 percent of normal economic and housing activity. Meanwhile, 66 percent of markets have shown an improvement year-over-year. “The markets are recovering at a slow, gradual pace,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Del. “Continued job creation, economic growth and increasing consumer confidence should help spur pent-up demand for housing.” Baton Rouge, La., continues to top the list of major metros on the LMI, with a score of 1.39 – or 39 percent better than its last normal market level. Other major metros leading the list include Austin, Texas; Honolulu; Oklahoma City and Houston. Rounding out the top 10 are Los Angeles; San Jose, Calif.; Salt Lake City; New Orleans and Charleston, S.C. — all of whose LMI scores indicate that their market activity now equals or exceeds previous norms. “An uptick in the number of single-family permits, which is currently only 44 percent of normal activity, is the key to a full-fledged housing recovery,” said NAHB Chief Economist David Crowe. “In the 17 metros where permits are at or above normal, the overall index shows that these markets have fully recovered.”
“Nearly half of all the markets on the Leading Markets Index are up since August, which is a good sign that the ongoing housing recovery will keep moving forward in 2015,” said Kurt Pfotenhauer, vice chairman of First American Title Insurance Company, which co-sponsors the LMI report.
Looking at smaller metros, both Midland and Odessa, Texas, boast LMI scores of 2.0 or better, meaning their markets are now at double their strength prior to the recession. Also leading the list of smaller metros are Grand Forks, N.D; Bismarck, N.D.; and Casper, Wyo., respectively. The LMI shifts the focus from identifying markets that have recently begun to recover, which was the aim of a previous gauge known as the Improving Markets Index, to identifying those areas that are now approaching and exceeding their previous normal levels of economic and housing activity. More than 350 metro areas are scored by taking their average permit, price and employment levels for the past 12 months and dividing each by their annual average over the last period of normal growth. For single-family permits and home prices, 2000-2003 is used as the last normal period, and for employment, 2007 is the base comparison. The three components are then averaged to provide an overall score for each market; a national score is calculated based on national measures of the three metrics. An index value above one indicates that a market has advanced beyond its previous normal level of economic activity. Editor’s Note: In calculating the LMI, NAHB utilizes employment data from the Bureau of Labor Statistics, house price appreciation data from Freddie Mac and single-family housing permits from the U.S. Census Bureau.