The Bay Area housing market got off to a strong start to the all-important spring selling season as the majority of homes sold in San Francisco in March went for over $1 million. The primary reason behind rising prices is a declining inventory of homes for sale, as there are fewer homes listed for sale than in last March, and that trend has been affecting markets nationwide. According to a report issued Wednesday by the National Association of Realtors, sales of previously lived-in homes rose 6.1 percent in March to a seasonally adjusted annual pace of 5.19 million. Those numbers were particularly promising considering home sales started slowly this year due to harsher winter weather, alleviating concerns that the housing sector was in decline.
About the only negative factor in the housing market currently is the issue of supply. According to recent reports, the market is currently holding about 4.6 months of supply, at March’s sales pace. Economists generally consider a supply of about 6 months as indicative of a healthy US housing market. Diminished supply has a negative impact on affordability, which prevents a lot of first-time buyers, considered a vital part of a healthy housing sector, from even considering buying. Tight supply drives prices higher and effectively cuts out many lower-end buyers that are unable to afford to buy. On a year-over-year basis, home values have risen 7.8 percent to a national median of $212,000, according to the NAR report.
While huge strides have certainly been made, the US housing sector is still striving to recover from the 2008 crash that brought on the worst economic downturn in the US since the Great Depression. A number of factors have impeded this recovery, including the uneven pace at which different parts of the economy improve. Rising home values are surpassing wage gains, which diminishes the pool of potential home buyers by making even the least expensive homes out of reach for lower income buyers. Prices continue to rise, meanwhile, because many possible sellers are underwater, meaning they owe the bank more than their home is worth. This trend limits active listings which pushes prices higher.
Despite the challenges still faced by the housing market, the NAR’s March report offers promise. The report marks the first time this year that the sales pace topped 5 million, and gives hope that the market can reach the so-called healthy level of 5.5 million sales this year. But even if sales slow slightly through the rest of the year, most economists fully expect sales to increase from last year’s paltry total of 4.94 million. Home sales surged in March in all four regions of the nation, led by the Midwest and Northeast, where sales were most significantly impacted by weather in the winter months. Last month also saw an increase in first-time buyers, which accounted for 30 percent of all sales last month, up from 29 percent in February.