IRVINE, CA—Potentially stronger-than-predicted March home sales may in part be due to inclement winter weather creating pent-up demand,
We spoke with Sharga after this announcement about what might be causing the upward shift in home-sales predictions and what it means moving forward.
GlobeSt.com: What do you believe is causing the possibly stronger home sales figures than were previously predicted for March?
Sharga: We've had two months in a row of very positive pending home sales from the National Association of Realtors. It's taking a little longer to go from agreement to closing than in the past, probably due to mortgage issues, but we've had two months of indications that we should be seeing more home sales. This looks likely, based on some of the other things we track such as online traffic from Google and our own site, that March numbers won't be as weak as predicted previously. We've also seen two months of a little lighter sales than previously, probably because of bad weather in parts of the country. So, these are probably pent-up sales in March from both January and February underperforming. These pent-up sales hopefully will continue into the spring.
Of course, it's all in context: we're talking about March numbers on an annually/seasonally adjusted basis breaking 5 million, which is back to where we were two years ago. Last year, we didn't quite break 5 million, so if March performs like we think, which is back to where we think we should have been all along, it's not cause to pop the champagne cork, but it's better than what we started with. If you look at wage growth, a 2% year-over-year wage growth will not cause a buying spree. There's still low inventory and tighter credit than historically, but it's starting to loosen up. The difference is the number of people who want to buy a house and the number of available mortgages.
GlobeSt.com: Is there an emerging home-buyer profile entering the market that hadn't appeared there before?
Sharga: There are a lot of potential Hispanic buyers who are having trouble qualifying for a traditional loan. We are seeing rapid growth in the Hispanic population, and most recently this had not been from immigration, but from Latinos who are already here. The Hispanic community is outpacing overall household formation. Many of them prefer to own a home rather than rent. A high number of Latinos are independent businesspeople, and that makes it hard to qualify for mortgages.
It's not so much that we're seeing a different group of homebuyers, but that we're not seeing two traditional groups of homebuyers: 1. investor activity is slowing down; 2. Millennials are staying in school longer, marrying later and having kids later, so first-time buyers aren't buying as much. The inflection points in their lives that would normally spur homeownership are being put off. But eventually, that dam will break.
Also, among existing homeowners, there are still 5.5 million people underwater on their loans, and the biggest group of homebuyers consists of home sellers. There are also another 1.5 million people near negative equity. Seven million people out of 50 million active mortgages are underwater or effectively underwater and can't move. Factor in another 1.2 million who are in a stage of foreclosure, and you can see the dramatic effect this has on the makeup of potential homebuyers. This is still the hangover from the boom and bust, but it was such a volatile period that it's taking a long time to work through the aftermath.
GlobeSt.com: Since we know that Millennials are putting off buying homes, how do the improved homes-sales numbers mesh with the continued strength of the apartment sector?
Sharga: The fact is, we are finally seeing household formation at rates we expected probably two years ago. Junior is finally moving out of mom's basement and forming households. A high percentage are renting, and the rental market is stressed. Only about 4% of the inventory is vacant single-families, and apartment vacancy rates are about 3% to 4% across the country. We're seeing more households formed, which leads to more home sales, but increasingly more demand for rental units. As household formation rates continue to increase, we will continue to have demand outstrip supply coming to market. This won't last forever, but for the next year or two it will be a pretty solid lock.
GlobeSt.com: What else should our readers keep in mind about the residential sector?
Sharga: We're looking at another year-and-a-half of steady, but incremental, growth. There will probably between 4.9 million and 5.1 million existing home sales by year end. It will be a fairly boring next 18 months.
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