Realty Times said it before and we'll say it again -- buyers are pulling back out of uncertainty, but springtime sales will likely come close to previous national records.
Why? Call it the Ken Lay effect. There's still nowhere else that's as safe to put your money as housing. As long as the stock market teeters with ignorant traders, management chicanery and overpaid CEOs, housing looks like a tall gilbralter of safety in a turbulent financial sea.
First, unlike stocks where you have to pony up $1 for every share you buy, homebuyers can borrow up to 100 percent of their purchase price (depending on their credit.) And there's little penalty for long-term gains. Unlike gains on stock sales, if you're lucky enough to have them, the taxable amount can be anywhere from 15 percent to 35 percent. All they have to do is live in their homes two out of five years of ownership, and homeowners can sell the property and pay Uncle Sam nothing in capital gains (up to $250,000 for singles, $500,000 for married couples.) So you can borrow the money to buy an asset that you can sell tax-free after only two years. What a country!
Sure enough, housing sales are rebounding just like we said they would, and barring some unforeseen disaster, we expect sales in April and May to be even more robust.
The National Association of Realtors has reported two months of rebounds. While that singing robin doesn't make a spring, it certainly appears to forecast good news for housing.
Total existing-home sales -- including single-family, townhomes, condominiums and co-ops -- rose 0.3 percent to a seasonally adjusted annual rate of 6.92 million units in March from a pace of 6.90 million in February, but were 0.7 percent below a 6.97 million-unit level in March 2005.
David Lereah, NAR's chief economist, predicted a soft landing and says it's here. "We may see some minor slowing in home sales as interest rates rise, but the market clearly is stabilizing," he says. Lereah expects 2006 to be the third strongest year on record for home sales.
Home appreciation may cool, compared to years past, but that's natural in a rising rate environment, but homes still managed a 7.4 increase in prices over last year. Today's median home costs $218,000. A year ago, it cost $203,000.
Defying reason, home prices are still increasing by the double digits, up 13 percent, in California, while the number of transactions is down over 15 percent.
"March is the month in which we typically see the market gear up for peak season activity, and this year is no exception," said California Association of Realtors President Vince Malta. "Seasonally adjusted statewide sales increased 4.9 percent compared with February and the statewide median rose 4.8 percent compared with the prior month. This is very similar to March 2005, when sales rose 4.4 percent month-to-month and the median price registered a 5.5 percent increase."
The median price of an existing, single-family detached home in California during March 2006 was $561,350. In March last year, the median home cost $496,890.
What's notable is that housing inventories are falling, supporting Realty Times theory that homebuyers sidelined themselves to "wait and see." As they saw prices failed to abate, they jumped back in the game.
"The inventory of homes for sale fell from a 6.6 month supply in February to 4.8 months in March," said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. "Unsold inventory climbed significantly in the first two months of this year as listings increased and sales declined. Although the supply of homes for sale increased again in March, this was more than offset by a seasonal increase in sales, prompting a decrease in the unsold inventory index. We expect the supply of homes relative to sales to decline gradually over the next few months, although inventory levels will likely remain higher than those of the last two years."
Meanwhile, new home sales also increased by nearly 14 percent in March, said the Commerce Department, while the number of new homes sold is down 8.2 percent year-to-date.
Good news for housing investors is the fact that apartment rents are heading skyward, according to a CNNMoney report by Les Christie. Quoting Greg Willett, vice president for research and analysis at M/PF YieldStar, the high price of housing is driving many to rent instead of buy.
"There has been a big cut in the number of higher income renters. Many people used to be renters by choice. Now most renters are by necessity."
