Unless there is a significant increase in home building, home sales and prices will continue to climb which will raise the prospect of a new housing bubble!
Lawrence Yun, the chief economist for the National Association of Realtors said an increase of 50% in home building is what is needed and that “The home price growth is too fast, and only additional supply from new homebuilding can moderate future price growth.”
According to NAR, the median price jumped to $208,000 which is an 8% increase from the previous month. Prices are now at levels seen back in the summer of 2008 right before the housing bubble burst. Even though month to month price swings aren’t unusual, the year-over-year rise is now at 15%.
We haven’t seen such price increases since May of 2006 and May 2013 marked the 15th straight month of price increases.
Partly due to a drop in foreclosures, home prices are being driven higher and a mere 18% of home sales for May were from so-called distressed sales. These typically sell at a discount to market prices. Just a year ago, 25% of these sales were from distressed sales.
Also in the month of May, overall sales rose 4% from April, 13% from a year earlier to an annual rate of 5.18 million.
NAR’s president, Gary Thomas said that there is a difference between this run up in prices compared to the housing bubble that preceded the financial crisis. “The boom period was marked by easy credit and overbuilding, but today we have tight mortgage credit and widespread shortages of homes for sale.” he said.
Faster than its prompting sellers to put homes on the market, the improved housing market and mortgage rates are still near record lows are pulling buyers back in the market, despite a recent rise in rates. The supply of homes for sale is actually down 10% while buyer traffic is 29% above last year.
This has caused homes to sell much faster. Averaging only 41 days on the market in May which is approximately a month faster than last year, and nearly half these homes were sold in less than a month.
During the heyday of the housing bubble, the statement from officials was one of cheering on the steady rise in prices. Now they are touting warnings of prices rising too fast – a very stark change in position.
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