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There’s a part of the new housing crisis that tells us good news about the US economy.
Right now, inventory levels are not enough to service potential homebuyers in many markets.
This imbalance has contributed to a rise in home prices that is locking many out of homeownership. San Francisco is probably the poster child of this problem.
But the demand side of the equation is reason to remain bullish on the outlook for the housing market.
On Friday, the National Association of Realtors said that existing-home sales kept their momentum in April, rising 1.7% at a seasonally adjusted annual rate of 5.45 million.
NAR chief economist Lawrence Yun said that the biggest gains were in the most affordable Midwest – indicative of where the activity really is.
Still, the trend in the West, where low supply and high prices are hurting buyers the most, is not widespread enough to be bearish on the overall housing market.
“The good news is we’ve actually seen the number of new listings coming onto the market this year rise rather significantly from last year,” said Budge Huskey, CEO of Coldwell Banker Real Estate, which transacts in nearly 50 US cities.
“It’s just that whenever [listings] come on the market, they’re selling quickly ’cause the demand is there,” he told Business Insider.
Deutsche Bank’s Joe LaVorgna recently wrote that he remains optimistic about the housing market partly because credit standards for buyers creating this demand has tightened.
Specifically, as BI’s Bob Bryan noted, banks and lenders have improved mortgage standards, shutting out many first-time buyers with lower credit scores.
“The individuals who are driving the demand in these markets are doing so based on real money, real income, real capabilities, and they are true buyers,” Huskey said.
He continued: “This is very much different from the mid-2000s, where many of the buyers in these markets that tended to overheat things were only in the market and only buying because of the availability of financing that was probably less than responsible.”
Improved access to loans and higher wages should support housing’s contribution to growth for the remainder of the cycle, LaVorgna said.
But the most desirable outcome, according to Huskey, would be that home-price gains become tied to economic and wage growth, while sales gains reflect increases in household formation.
“Despite the fact that prices have accelerated at that pace, there is more than sufficient demand based on individuals who are qualified and have the income to purchase,” Huskey said. “So I’m not sure that we’re even at the point where it begins to compromise overall sales activity.”