US housing inventory still tight despite added supply, with additions unable to significantly slow rate of appreciation; second homes rented out by homeowners who are waiting to sell until prices increase constitute 'hidden inventory,' says NAR

Allison Oesterle

Allison Oesterle

May 31, 2013 – Investor's Business Daily

LOS ANGELES , May 31, 2013 () – Builders Are In No Rush
Existing-home inventory jumped in April, but gain so-so in actual dwellings

Rising home prices may be drawing enough sellers to keep the market from overheating this year, but the added supply still is not enough to significantly cool the rate of appreciation.

With the spring selling season well under way, data indicate that higher values are spurring more owners to put the housing crash behind them.

But pending home sales missed estimates in April, edging up just 0.3% vs. March, the National Association of Realtors said Thursday, due in part to tight supply.

An earlier gauge of existing-home inventory leapt 11.9% last month, the most in 13 years, but still 13.6% below April 2012. The gain of 230,000 homes was middling vs. the 200,000-300,000 average for April, typically a year's biggest inventory bump.

With the 2013 housing supply trajectory looking clearer, NAR expects existing-home prices to climb 8%, faster than last year's 6.3% but slower than the 10% spike that was feared earlier.

"We've got a bit of headroom," said NAR spokesman Walter Molony. "We're not looking at a bubble scenario."

An 8% full-year rise would also offer signal some relief from five straight months of double-digit annual price gains, which threaten affordability.

Prices could climb faster if prospective buyers had more access to lending, Molony adds. For now, cash investors able to negotiate better deals are grabbing a bigger share of the market.

All-cash sales accounted for 32% of existing-home deals in April, up from 30% in March and 29% a year earlier. First-time buyers made up 29% of last month's purchases vs. 35% in April 2012.

One wild card is the number of "accidental landlords," which Molony calls people who have bought a second home recently and are renting out their old one until they regain more equity.

"That's kind of like hidden inventory," he said.

For owners who owe more than their homes are worth, rising prices are a disincentive to sell right now. Q1 short sales fell 10% vs. Q4 after trending higher last year, RealtyTrac said Thursday .

Lenders had viewed short sales as a way to recoup more money on distressed properties than foreclosing and reselling. But prices on repossessed homes are climbing faster than nondistressed homes in many markets, the real estate data firm notes.

If banks shift to foreclosure sales and away from short sales, the supply may drop, given that not everyone who might have qualified for a short sale will end up in foreclosure.

NAR continues to see homebuilding as the key to boosting inventory. April new, single-family homes for sale stood at 156,000, up 7.6% from a year earlier, though builders slowed the pace of new construction last month.

Realtors say banks aren't offering enough credit to smaller builders. The industry also faces higher material costs and some skilled labor shortages, as the bust forced many workers to switch fields.

Some large builders have indicated they are managing their inventory to keep prices up too.

"We are pricing our homes and limiting the number of lots we're releasing for sale in some communities to better manage our order volumes relative to our production capacity, and to maximize our profit," Meritage Homes ([STOCK[MTH]]) CEO Steven Hilton said in a Q1 earnings statement last month.

Meanwhile, mortgage rates remain historically low, but have hit one-year highs as the Federal Reserve hints at reducing bond buys. Higher rates will lift mortgage payments, creating a head wind for prices.
(c) 2013 Investor's Business Daily, Inc

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