Both new-home starts and existing-home sales underperformed, so far, this spring. Despite near-constant clamor for more housing inventory, the U.S. Commerce Department reported housing starts fell in March to a seasonally adjusted annual rate of 1.14 million, the lowest in nearly two years and 14 percent lower than a year prior. Existing-home sales slid in March after a strong February, leading the National Association of Realtors (NAR) to blame March’s missed projections on a particularly strong February, calling the slowdown “a return to normalcy.” This may, in fact, be the case, as median home prices continued to rise in March, posting a nearly 4 percent year-over-year gain.
The decline in housing starts, however, is troubling, since housing starts and housing permits are conventionally employed to project future market gains. “Several factors are negatively affecting the housing market,” said National Association of Home Builders (NAHB) chief economist Robert Dietz. He cited “excessive regulations, a lack of buildable lots, and ongoing labor shortages” as part of the issue, but optimistically added, “Recent declines in mortgage rates should help support the market in future months.”
CreditSuisse analysts concurred that March’s low numbers might be a “temporary blip.” The group blamed “inclement weather including atypical rainfall, snow, and cold, which affected the majority of the country for half the month.” This does not, however, explain why housing permits were down in March by nearly 2 percent. It is worth noting that permits were down nearly 17 percent on the West Coast, but remained unchanged in the Northeast and nearly unchanged (-0.4 percent) in the South.
First-Time Buyer Population is Not Growing
Part of the problem may be that the population of first-time buyers is remaining steady rather than growing. While this group of buyers makes up about a third of the total buying population, that number has not increased over the past two decades. Given the economic swings of the last 20 years, it is to be expected that this group would have expanded along with the national economy. However, the NAR reported this has not happened.
Because a growing population of first-time buyers usually indicates increased opportunities in the national economy for upward financial mobility, stagnation likely indicates either a cultural shift affecting national attitudes toward homeownership or a general inability to buy a home despite a strong national economy. This could be a problem, especially since most data firms treat anyone buying a home and achieving interest in a property for the first time in three years as a first-time buyer. In fact, this could indicate a serious deterioration of the first-time homebuying population overall, which would affect the entire housing market over time.
Tell us what you think:
- Are there really fewer first-time homebuyers?
- Why aren’t more Americans buying homes?
- Does this affect your investment strategies?
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