Spring is typically the busiest time of year for real estate, as families with children scramble to get settled into a new home in time to enroll students in the schools of their choice. So far, however, the 2014 spring season has been a bust, with a series of recent reports indicating that the usual pickup has not yet happened. A study of homebuyer traffic in 40 US markets, compiled by Credit Suisse, shows that shopper traffic is off by a third compared to last year. And a report issued Thursday by the National Association of Realtors showed that pending home sales in February were down almost 11 percent compared to last year. Pending home sales are viewed as an indicator of future sales, so the drop indicates that existing home sales for March and April will likely be that much lower.
Suggested causes for the slow start to the spring selling season are numerous. Investors aren’t buying as many properties because the inventory of distressed properties has shrunk substantially, colder-than-normal weather in several regions has had an impact, and the cost of buying a home has gone up considerably over the last year because of rising home values and interest rates. In fact, the average monthly mortgage payment has increased about 20 percent over the last year according to most housing insiders. The biggest concern is that the slower spring will transition into a dismal summer, and in effect derail the ongoing recovery from the worst US recession since the 1930s. Real estate experts are particularly concerned about a couple of trends as many markets are running out of inventory of homes on the market and others just have too many high-priced homes but not enough entry-level units.
While the disappointing spring is discouraging, some of the factors involved also come with a bright side. The fact that inventory of distressed properties such as foreclosures and short sale listings is helping to alleviate concerns that the overwhelming “shadow inventory” will hinder the recovery. At the same time, home prices in many US markets have reached all-time or post-recession highs way sooner than most experts would’ve predicted just a handful of months ago. That shows that the recovery has been stronger than we thought over the last few years. Of course, those same factors have also bled into the current slump. In addition, the slower spring seems more pronounced in areas like Phoenix, Southern California and other markets that had been leading the recovery. Markets in the East, where the recovery has been slower to take hold, have actually experienced typical activity in the early spring.
So while the tepid beginning to the spring season is concerning, some of the factors involved make it a little easier to swallow. The same factors that are affecting home sales now are also evidence that the recovery has been more robust than most insiders thought, which means we are further along in that recovery than we had figured. Besides, the spring season is just getting started, so the slow start could still transition into a strong close, and the concerns that some economists have may turn out to be completely unwarranted by the time the spring is over.