Although many factors can influence prices, it ultimately boils down to supply vs. demand. As far as the U.S. housing market is concerned, two recent articles make it clear that these particular fundamentals are still heading in the wrong direction.
In "Housing Inventory Surges in March," the Wall Street Journal reports that the traditionally buoyant spring selling season is already looking somewhat top-heavy.
A sharp increase in homes offered for sale last month suggests that home shoppers will find plenty of choices this spring.
The number of homes listed for sale in 18 major U.S. metropolitan areas at the end of March increased 6.5% from a month earlier, according to data compiled by ZipRealty Inc., a national real-estate brokerage firm in Emeryville, Calif. The data cover listings of single-family homes, condominiums and town houses on local multiple-listing services.
Over the past 22 years, home inventories nationwide have increased an average of 1.7% in March from February, according to Credit Suisse Group. Supplies typically rise modestly in March as sellers pursue the many families with children who seek new homes in the spring, so they can move during summer vacations.
The big rise in the latest month may reflect sellers' expectations that it will take much longer to find buyers than it did during the housing boom of the first half of this decade, said Patrick Lashinsky, president of ZipRealty. Rather than waiting for April or May, he said, many people planning to move this summer put their homes up for sale in March. He added that many sellers are being cautious, waiting to sell their old homes before committing to buy new ones....
Large inventories have caused prices to level off or fall modestly in much of the country over the past year or so. The recent surge in defaults on subprime mortgages -- loans to people with blemished credit records -- has prompted lenders to tighten credit standards. That tightening is expected to put downward pressure on home prices by removing many potential buyers from the market.
Indeed, data released yesterday suggests that the other side of the equation is also problematic, with Reuters reporting that "Mortgage Demand Sags as Rates Rise."
Loan applications to purchase and refinance U.S. homes fell last week when mortgage rates increased, an industry group said Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications fell for the third straight week, dropping 3.2% to 649.5 in the week ended March 30.The MBA's seasonally adjusted purchase index declined 2.0% to 402.9, while its refinancing applications index fell 4.5% to 2,098.3.
Borrowing costs rose for all loan types. The average 30-year fixed-rate mortgage, excluding fees, rose 0.09 percentage point from the prior week to 6.13%, their highest since 6.16% in the Feb. 23 week.
The week's slide in applications dragged all three MBA indexes down on a four-week moving average, which smooths out volatility.
On that basis, the market index was 0.8% lower at 670.8, the purchase index dipped 0.1% to 409.7 and the refinancing index slipped 1.5% to 2,204.2.
Reports over the past few weeks on U.S. home sales and prices paint a mixed picture.
Long-term mortgage rates remain relatively low, which should bolster loan applications, analysts agree.
Average 30-year fixed home loan rates were close to 6.50% a year ago, according to the Mortgage Bankers Association.
However, stricter lending practices to temper jumping late mortgage payments and foreclosures, especially among borrowers with weak credit, will likely forestall the recovery in U.S. housing, most analysts agree....
Paring the growing stockpile of unsold homes is seen as essential for a sustained housing rebound.
"Even a stabilization in sales will do little to work off quickly the high level of inventories of homes for sale, which in turn means further downward pressure on prices," UBS said in a report Tuesday.
The fact is, rising supply and falling demand equals lower prices. It's Economics 101.
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