In a normal housing market, there is almost always a decently balanced pool of winners and losers. But as severely limited inventory continues to help push up home prices at a rapid clip, it’s clear that current housing trends are far from normal – and that there are a lot more losers right now than winners.
The U.S. National Case-Shiller Index® rose 6.4 percent in April from a year ago, largely in line with expectations. April was the eighth straight month of annual appreciation of 6 percent or higher, and the longest such streak since a stretch of 19 months of breakneck appreciation that began in December 2012 as the housing market began to bounce back in earnest from the depths of the recession. Over the past 30-plus years, dating to January 1988, annual U.S. home price growth as measured by the Case Shiller National Index has averaged 3.8 percent.
The smaller 10- and 20-city indices grew 6.2 percent and 6.6. percent year-over-year, respectively, also largely in line with expectations.
This kind of sustained, rapid growth is so abnormal that it increasingly feels like the housing deck is stacked – even against those that are seemingly holding a winning hand.
Home sellers, for example, seem to be sitting pretty, ready to cash in on several years of rapidly accruing equity and holding the power when it comes to offers from buyers. But when those sellers need to turn around and become buyers themselves, they end up right back in the losers column, forced to deal with the same intense competition and rapidly rising prices as everyone else.
First-time buyers should, in theory, be primed to capitalize on lending standards that have loosened notably since the depth of the recession and mortgage interest rates that remain near historic lows even after their recent rise. But a near-total lack of available inventory in the most affordable segments means these often lower-budget buyers are forced to save longer to buy a more expensive home and may have to push their home searches into more affordable areas.
Builders have surely noted the inventory crunch, and have recently begun to start and sell more new homes than at any point since the market bottomed out. This should add nicely to their bottom lines, except for the fact that relentlessly rising land, labor and lumber costs are taking huge chunks from their top lines and holding back a true building boom that might cure a lot of ills.
Looking ahead, rapid home value growth may slow somewhat, although not likely by much to make a difference in the underlying trends of high demand and low supply that are driving the market right now. Zillow expects the U.S. National Index to grow by 6.3 percent in May from a year ago, down only slightly from April. The 10- and 20-city indices are likely to slow down further. Full Case-Shiller data for May is scheduled for release Tuesday, July 31.
At its core, the market’s pervasive and longstanding inventory drought is the root cause of much if not all of these extreme imbalances – and until supply and demand are even roughly balanced, housing market winners are likely to continue to be few and far between.
Note: Case-Shiller and Case-Shiller Index are registered trademarks of CoreLogic Solutions, LLC. The statements herein are not endorsed by or provided in association or connection with CoreLogic, LLC.