With the first month of the New Year almost behind us, we can more accurately reflect on the previous year. For all intents and purposes, 2013 was a relatively good year for the U.S. housing sector. Price appreciation awarded many the opportunity to regain lost equity and millions of homeowners are no longer under water. Of particular importance, however, is the return of existing home sales. Despite three consecutive months of decline prior to December, U.S. home re-sales rose slightly at the end of 2013. Analysts are attributing the rise to record low mortgage interest rates and pent-up demand.
According to a report issued by the National Association of Realtors (NAR) last week, the annual rate of previously owned homes being sold reached 4.87 million units. The recent increase experienced by the U.S. housing sector capped a year in which existing home sales were the highest they have been in seven years. While the numbers sound encouraging, they are slightly under what we had hoped for. There is still room for improvement, as the housing sector recovery is still struggling to gain traction. Economists polled by Reuters had expected home re-sales to rise to a 4.94 million-unit pace in December.
“For the year as a whole, it’s a good recovery,” NAR economist Lawrence Yun told reporters. “We lost some momentum toward the end of 2013.”
By all accounts, 2013 started off strong. It looked as if momentum would carry over into 2014. However, dramatic increases in both mortgage rates and price appreciation tempered the potential of existing home sales. Some buyers, particularly those looking to buy for the first time, were essentially priced out of the market. Conditions prevented them from ever even participating in the market.
Despite increasing mortgage rates and affordability issues, there are still indicators that encourage the progression of the current recovery. A steady rise in household formation from multi-decade lows has boosted demand and encourages builders to undertake new development projects.
According to Yun, two opposing forces are impacting the market: a mismatch of fast-rising prices coupled with weak income growth. At the very least, these conditions make it more difficult for prospective buyers to actively participate in the market. At the end of 2013, the median price of a home in the United States rose 9.9 percent from the same period last year. The increase saw the average cost of a home jump to $198,000.
The price increase has been attributed to a distinct lack of inventory made available. The number of homes for sale remains relatively tight, and the inventory of unsold properties on the market dropped 9.3 from the prior month to 1.86 million. The recent trend in existing home sales should, therefore, give buyers more options and essentially improve affordability.