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Will buyers rule the market this spring?

by Andrew Morrell

The coming spring season, when home sales usually take off, could be a great one for buyers as the stars align in their favor: Mortgage rates are low, inventory levels are higher and price growth has slowed. Already, home sales have begun to rebound from a sluggish end to 2018, signaling strength in the months ahead. But with the recent pace of new home construction still well below demand, will buyers have enough options available to make a difference?

A few different reports and housing market experts have recently weighed in on both sides of the issue. Here’s what they are saying given the latest data:

Price is still paramount

Purely from a pricing perspective, it would appear buyers have the upper hand heading into spring.

According to the latest Case-Shiller home price index, released March 26, price growth slowed once again in January, to 4.3 percent. That marks 10 straight months of declines nationally.

“This is a strong signal that the homebuying season this spring will look quite different than in recent years,” said CoreLogic economist Ralph McLaughlin regarding the new Case-Shiller report. “While sellers still hold a good set of cards, buyers in some high-price coastal markets have recently drawn aces with rising inventory, increasing price cuts and longer time on the market, helping them win some hands. As a result, we can expect buyers and sellers to be a little better matched at the negotiating table this spring.”

Based on pending and existing home sales data released in the last month by the National Association of Realtors, it would appear buyers around the country are responding to this shift. McLaughlin projects this will bring “balance” to the housing market in spring, with buyers and sellers more equally matched.

Builders can’t keep up

On the other hand, there are still a few factors that could limit home sales activity this year. Chief among them: the long-running shortage of new construction activity.

The most recent data on housing starts, also released March 26, showed residential building activity fell again in February to a seasonally adjusted annual rate of 1.16 million units. This rate is 9.9 percent below year-ago levels, while single-family starts were down 10.6 percent.

February’s decline in housing starts wasn’t entirely surprising, Zillow economist Matthew Speakman explained, given inclement weather conditions that persisted throughout the month. But it was a disappointment after January’s spike in building activity, which itself followed four straight months of decline. For the last 10 years, residential construction activity has consistently undershot demand. That has pushed prices up and made it difficult for buyers to find affordable homes.

NAR chief economist Lawrence Yun fears this could have a long-term impact on the housing market and even reverse the trend of slowing price growth.

“Housing starts falling in February is not what is needed to assure a sustainable housing market recovery,” Yun said in a statement following the release of new construction data. “Home prices will rise in 2019 for sure… unless housing starts rise consistently, home prices could soon re-accelerate upwards and lead to unaffordable housing conditions.”

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