The existing home sales report for March from the National Association of Realtors isn’t due until next week, but Mark Fleming, chief economist for First American, said his early look suggests that a lack of equity is continuing to dog the housing market.
Housing has seen a weak start to the year overall. Mortgage applications have been soft – more down than up – and indicators like sales, starts, and new home purchases have underperformed. This is despite the fact that buying is cheaper than renting in three out of four markets nationwide.
Existing home sales were tepidly positive in February, and the primary reason cited was tightening inventory.
Fleming says the main reason for the weakness in the existing home sale market is lack of equity.
“Lack of equity remains a significant constraining factor for market participants and is the primary reason the existing-home sales market is underperforming. Existing homeowners are the largest share of the existing-home sales market, and they can’t be home buyers if they don’t have the sufficient equity to be home sellers,” Fleming says. “This is one of the key reasons we are observing tight inventory in many markets.
“Yet the appreciation we do observe, returning equity to existing homeowners, is the most significant key driver of the improvement in expected sales,” Fleming said.
“Lack of equity is a reason, but it is not the only reason,” Sanders said. “Dismal wage growth and real median household income continues to weigh down the housing market.”