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National statistics for February home sales came out last week. They show growth in home sales and prices and raise some red flags for the future.

Existing Home Sales

Existing home sales showed healthy gains in the number of units sold compared with a February 2014 but even faster price gains due to the continued shortage of inventory available for sale. Existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 1.2% to a seasonally adjusted annual rate of 4.88 million in February from 4.82 million in January. Sales were 4.7% higher than  February 2014 and above year-over-year totals for the fifth consecutive month.

The median existing-home price for all housing types in February was $202,600, which is 7.5% above February 2014. This marks the 36th consecutive month of year-over-year price gains and the largest since last February (8.8%).

Lawrence Yun, whose full commentary you can listen to in the YouTube clip below, says although February sales showed modest improvement, there’s been some stagnation in the market in recent months. Yun, who is chief economist for the National Association of Realtors®, attributes the stagnation to “insufficient supply” which is “hampering prospective buyers in several areas of the country and is hiking prices to near unsuitable levels.” He said, “Stronger price growth is a boon for homeowners looking to build additional equity, but it continues to be an obstacle for current buyers looking to close before rates rise.”

New Home Sales

Contracts to buy a newly constructed home soared in February, portending a solid demand going into the spring home buying season. One reason is due to builders bringing less-expensive homes onto the market, according to Yun’s analysis.

New home sales hit 539,000 (annualized pace), which is a big increase of 25% from one year ago and marks the highest sales pace since February 2008.  The median price of a new home was $275,500, which is less than $300,000 of recent past months.  This implies that slightly lower price points are very popular with buyers. Even with the latest big gain, new home sales and housing starts (the construction of all new homes) remain well below the levels of 2000.  There is indeed much room for further growth.  NAR expects new home sales to rise 30 to 35 percent in 2015.

Red Flags

Home prices for both new and existing homes have been rising much faster than income.  Moreover, rent gains have also been easily outpacing income growth. This is a deadly combination that prevents renters from saving for down payments.

The only way to tame the strong rise in housing costs is to produce more new homes.  Unfortunately, many small-sized local homebuilders are still having hard time obtaining construction loans (even though homes are selling quickly and therefore carrying very low risk of a default). Changes to Dodd-Frank rules as they apply to small community banks could be a way to alleviate this problem.

While employment gains are a positive note for the future outlook of the housing market if employment gains are based on hiring into lower paying jobs than people previously had, the outlook for savings and home purchases is not good.

Slow income growth and shortage of affordable homes for sale are key elements of the Flagstaff housing market. To learn more about how this affects your plans to buy or sell a Flagstaff home, give us a call at 928.714.0001 or start by visiting our website, BestFlagstaffHomes.com.