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By Josh Lehner
Oregon Office of Economic Analysis Blog [6]
The number of homes sold across the U.S. [7] was up and the highest in six years, according to the latest data released this morning. That’s good. While the overall housing market, particularly on the ownership and construction side of things, stalled out in the past year or two, it may be picking up again. The good news is that examining the fundamentals within the housing market yields even more favorable news.
First, with rising home prices, and more improtantly rising home equity, the share of homes sold for a loss is falling. During the depths of the housing and foreclosure crisis, 1 in every 2 homes sold in Bend or Medford was sold for a loss. In Oregon overall and the U.S. (not shown) it peaked at about 1 in every 3 homes. These figures have improve considerably in the past 2 years, along with the housing recovery. Today the figures are about 1/3 to 1/2 smaller than their peak shares.
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Another good sign that the market is finding some semblance of balance is the sales to list price ratio. This indicates a couple of things. First, it means buyers are generally pricing the homes right, in terms of attracting buyers. Second, this does also reflect stronger competition for homes. Given the low inventory on the market, bidding wars have been more commonplace in recent years, with homes being sold above asking price in sought-after areas or neighborhoods.
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Lastly, price appreciation is beginning to slow. Overall that’s also good. The cyclical rebound in home prices appears to be over or about over in many locations. Prices today are, more or less, back to historical trends if you were to cut through the boom and bust nature of the past decade. As such, our office’s forecast continues to call for home price gains in the coming years to be more in-line with overall inflation.
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The fundamentals underlying the ownership side of housing appear to be getting back in balance, given recent trends. Not back to pre-recession levels, but back in some equilibrium, which is at a lower level so far. Inventory is rising, albeit slowly. With underwater homes becoming fewer in number, expect inventory to climb. As the economy continues to recover, with more employed individuals, household formation will likewise continue to pick up. Home prices are set to rise further, however the very strong appreciation rates are likely behind us. However that does not rule out a near-term price correction in some markets, where prices may have risen a little too fast, too quickly. Overall, just as the economy is getting there, so too is the housing market.