By Nick Timiraos
The U.S. housing market failed to provide the lift to the
economy over the past year that many analysts expected. It enters a
new year with few signs pointing to either a renewed breakout or a
sharp slowdown.
New data released this week showed that contracts signed to buy
previously owned homes rose to the third-highest level of the past
year, the latest sign of how housing demand firmed up in 2014 after
a sluggish start.
The National Association of Realtors said Wednesday that its
index measuring pending home sales in November, reflecting sales
that have gone into contract but haven't yet closed, rose 0.8% from
October and 4.1% from a year earlier on a seasonally adjusted
basis. That represents the largest year-over-year gain for the
index since August 2013.
But as a whole, the housing market fell short of expectations
amid tepid demand, rising prices and continued complaints from
buyers about the quality of inventory. "The market overpriced
itself this year, and buyers are very price sensitive right now,"
said Glenn Kelman, chief executive of real-estate brokerage
Redfin.
Nela Richardson, the firm's chief economist, said they expect
the market to be less competitive this year. "Homes that had four
offers now have one," she said, although there is still "a lot of
price pressure in a really small number of neighborhoods."
After a two-year rebound, housing demand faltered halfway
through 2013 amid inventory shortages, rising prices and a sudden
increase in mortgage rates. Demand stayed soft in early 2014,
during a particularly cold winter, but improved in the summer, a
period during which mortgage rates floated down.
The average 30-year fixed-rate mortgage stood at 3.87% for the
week ended Wednesday, according to Freddie Mac, near its lowest
level of the past year.
Sales of previously owned homes are running around 4% below the
year-earlier level through the first 11 months of 2014. Still,
sales climbed throughout the middle of the past year, from a 4.59
million seasonally adjusted annual rate in March to 5.25 million in
October. They slid 6% in November to a 4.93 million rate, according
to the National Association of Realtors.
News Corp, owner of The Wall Street Journal, also owns Move
Inc., which operates a website and mobile products for the National
Association of Realtors.
Sales of new homes have been essentially unchanged over the past
year, falling far short of economists' expectations for
double-digit gains in new home sales. That's happened in part
because builders have focused on constructing larger, more
expensive homes.
Broad sales measures don't fully capture other dimensions the
housing market's recovery. In particular, the share of homes
selling out of foreclosure accounted for as many as a third of home
sales in 2012. The share of distressed sales has fallen sharply, to
around 9% in recent months. The upshot is that traditional sales
now account for a far larger share of the market--a sign of
improvement.
Home prices tell a similar story. After falling nearly one-third
from their peak in 2006, prices began rebounding sharply in
February 2012 and since then have risen nearly 25% through October,
according to the S&P/Case-Shiller index.
Some of the price declines were exacerbated by a glut of
foreclosures. The subsequent rebound reflected increased investor
demand for those bargain-priced properties, most of which were
either quickly repaired and flipped for a profit or held off the
market as rentals.
As foreclosures have faded and investor-purchasers stepped back
from the market, price gains have slowed. In October, home prices
had increased 4.6% from their year-earlier level, compared to a
year-over-year gain of 10.9% in October 2013.
An open question in the coming year is whether price gains
stabilize at those lower levels or whether they weaken further.
Research firm Zelman & Associates expects price gains of 4% in
2015 and 3% in 2016.
But some market specialists say prices may need to give if sales
are to rise. "In a few markets, there will be price declines," Mr.
Kelman said, "and maybe in more than a few."
In expensive markets such as Southern California, "we have an
affordability problem again," said Mr. Burns. "The market is
flat."
Write to Nick Timiraos at nick.timiraos@wsj.com