The Week in Review: Sluggish Home Starts, Higher Existing Home Sales

Mixed data on housing surfaced this week as existing home sales saw a surprising upstart even as weak new home buying caused fear about homebuilders’ long-term profitability.  Existing home sales rose by 5.1% in March, according to a new study by the National Association of Realtor (NAR). The NAR said higher activity in the Northeast and Midwest, historically weak regions after the 2009 Global Financial Crisis, helped drive overall sales higher.

Mixed data on housing surfaced this week as existing home sales saw a surprising upstart even as weak new home buying caused fear about homebuilders’ long-term profitability.  Existing home sales rose by 5.1% in March, according to a new study by the National Association of Realtor (NAR). The NAR said higher activity in the Northeast and Midwest, historically weak regions after the 2009 Global Financial Crisis, helped drive overall sales higher.

“Closings came back in force last month as a greater number of buyers—mostly in the Northeast and Midwest—overcame depressed inventory levels and steady price growth to close on a home,” said Lawrence Yun, Chief Economist of the NAR.

“Buyer demand remains sturdy in most areas this spring and the mid-priced market is doing quite well,” he noted, adding that the gains are mostly coming from homes in the mid-price range, with cheap and very expensive houses underperforming. “Sales are softer both at the very low and very high ends of the market because of supply limitations and affordability pressures,” said Yun.

In addition to higher home buying activity, prices are also up. Median existing-home prices rose to $222,700 in March, up 5.7% on a year-over-year basis.

Home prices have gone up every month for the last four years.

The NAR ascribes the trend to a decline in inventory, as total homes on the market fell 1.5% on a year-over-year basis to 1.98 million. Sales activity also became increasingly volatile, especially for higher priced units.

“The choppiness in sales activity so far this year is directly related to the unevenness in the rate of new listings coming onto the market to replace what is, for the most part, being sold rather quickly,” said Yun. “Additionally, a segment of would-be buyers at the upper end of the market appear to have been spooked by January’s stock market correction.”

The strength in existing-home sales existed alongside a decline in mortgage purchases, according to the Mortgage Bankers Association’s Mortgage Applications Index. The Purchase Index fell 1% last week, while overall activity rose 1.3% on a week-over-week basis. That rise coincided with effectively flat interest rates, as the 30-year mortgage rose one basis point to 3.83%.

While existing home sales are strengthening, home building was also shown to be weak. Earlier this week, a Census Bureau study concluded housing starts fell 9% in March, but economists mostly dismissed the weak data.

Trulia’s Chief Economist, Ralph McLaughlin, dismissed the weakness as noise, noting that the 12-month rolling total of starts remained up 13% year-over-year, but remained below the 50-year average, providing further room for growth alongside a strong trend line.