It’s Still All About the Inventory

According to the February 2016 New Residential Home Sales report from HUD and the Census Bureau on Wednesday, new home sales were up by 2 percent over-the month in February but down 6 percent over-the-year, to an annually adjusted rate of 512,000 units.

Earlier in the week, the National Association of Realtors reported disappointing numbers for existing-home sales—a 7 percent decline over-the month down to an average annual rate of about 5.08 million.

Why have home sales have failed to keep pace with what was widely considered to be a strong start to the year? The reason is what many analysts and housing experts have been talking about for months: inventory.

“It’s likely that February is indicative of what we can expect for the rest of this year—annual sales settling somewhere in the 500-550,000 range,” said Ten-X Chief Marketing Officer Rick Sharga. “Inventory is too low to support much higher sales. There's virtually no inventory available at the entry level, and single family housing starts and permits continue to languish at levels far below where they should be at this point of the recovery.”

At least one analyst was not surprised by the recent housing reports.

“While the Dow Jones Industrial average, S&P index, and NASDAQ, have some very recent gains, the market had been mostly sluggish in January and February,” said Brian Montgomery, Vice Chairman of the Collingwood Group and former FHA Commissioner. “Throw in a limited housing inventory and I am not surprised by the data.”

“It’s likely that February is indicative of what we can expect for the rest of this year.”

Rick Sharga, Chief Marketing Officer, Ten-X

The 2 percent over-the-month new home sales gain in February was concentrated in the West, which experienced a 38.5 percent increase. The other three regions all experienced declines: 24.2 percent in the Northeast, 17.9 percent in the Midwest, and 4.1 percent in the South.

The presidential candidates may also be playing a role in the recent disappointing home sales numbers.

“The turbulence and questions about the future of the economy due to the possibility of Donald Trump or Bernie Sanders as president may be turning people off to long-term economic purchases like homes,” said Tom Booker, managing director of the Collingwood Group and a former top Fannie Mae executive. “Housing is key to the economy and we need presidential candidates who understand this.”