IRVINE, CA—Weak inventory, slowing demand, and rising prices continue to hamper the housing market's recovery, according to the March Auction.com Real Estate Nowcast. The report, issued Tuesday, projects March existing home sales between 4.83 and 5.12 million on a seasonally adjusted annualized basis, with a target number of 4.97 million – up 1.9% from February and 5.8% from a year ago.
"The housing market is continuing to recover, but at a slower, more incremental pace than what most people had hoped for in 2015,” explained Auction.com executive vice president Rick Sharga. “Three main problems continue to prevent more robust growth: extraordinarily limited inventory, especially at the entry level of the market; lower affordability, as home price increases have significantly outpaced wage growth; and tight credit for all but the most highly-qualified borrowers. This adds up to an especially difficult ecosystem for first-time homebuyers to navigate, and we continue to see less home sales to that segment of the market than what we've seen historically."
Findings from the Real Estate Nowcast suggest that sales prices for existing homes will fall between $193,956 and $214,373 during the month of March, with a targeted price of $204,165. This represents a 3.8% year-over-year increase for the month, suggesting that, while home prices continue to rise, a deceleration in price growth is underway, likely associated with the weakness in sales realized over the past few months.
This slowdown in price growth could boost sales in the coming months by slowing affordability deterioration, especially if wage growth continues, according to Auction.com chief economist Peter Muoio.
“Despite some recent softness in several economic indicators, the US economy – especially the labor market – appears to be on solid footing,” said Muoio. “Unemployment is descending, voluntary quits are increasing and consumer confidence has breached the 100 index level mark, bringing it firmly back into 'normal' territory. These are all positives for future housing demand and we continue to expect the housing recovery, now in a winter-like dormancy, to show signs of growth as the year progresses.”
The National Association of Realtors (NAR) recently released its existing home sales data for February, reporting that home sales increased slightly to 4.88 million units – within the range of 4.87 to 5.19 million units predicted by Auction.com on February 27 (revised from a range of 4.89 to 5.19 noted in the February 24 Real Estate Nowcast. NAR also reported a February increase in existing home prices to $202,600 – close to the prediction of $201,077 that Auction.com made last month and indicating a 7.5% increase compared to a year ago.
The Auction.com Real Estate Nowcast combines industry data, proprietary company transactional data and Google search activity to predict market trends as they are occurring – weeks before the findings of other benchmark studies are released. Building upon the groundbreaking work by Google chief economist Hal Varian, Auction.com's Nowcast model extends a traditional autoregressive-forecasting model to incorporate contemporaneous information that provides significantly enhanced accuracy.
Auction.com will occasionally update its Nowcast as fresh data provides additional signals for current home sales activity. The Auction.com Real Estate Nowcast model has proven highly accurate over the course of 2014 and into 2015.