Metrostudy chief economist Jonathan Smoke says don’t worry so much about last month’s somewhat lackluster home sales numbers, which rose a disappointing 1.3% in April rather than the expected 2% rise.
While there seems to be an air of gloom over the state of the U.S. recovery, Smoke calls the pessimism “misdirected hand-wringing over the alleged stall of the 2014 housing rebound."
The National Association of Realtors Thursday reported April existing home sales of 4.65 million, a modest 1.3% increase over March’s unrevised 4.59 million sales. Economists expected a 2% increase to 4.69 million sales of existing homes.
But Smoke argues that the total volume of home sales month to month isn’t nearly as important as the makeup of what’s being sold and who’s buying.
“You can fret all you want about the total volumes being up or down, but the reality is that the residential real estate market is getting healthier and healthier each month,” Smoke says.
The sign of continued health is the increase in non-distressed, normal transactions, meaning that more consumers, not investors, are buying. Prices, also, remain firm against continued demand with a limited supply of homes available on the market.
A deeper look at home sales from Metrostudy’s deed-level data across the country shows that REO sales among existing home sales decreased 23.5% from 16% in the first quarter to 12% in April. Foreclosures dropped 37% from a 14% share to 9%.
Meanwhile, the portion of regular re-sales, that is non-distressed sales, grew 13% from 69% to 79%. Comparing April 2014 with April 2013, the REO share fell 19% from 15% to 12% while the foreclosure share again declined from 14% to 9%. The regular resale share rose 11.5%, a jump from 70% to 79%.
Investor activity also continues to decline falling almost 10% in April from the first quarter.
“Why is this a good thing? Investors drove up pricing last year, and investors don’t create the same economic impact in home improvement that regular buyers do,” Smoke says.
Pricing is a key lagging indicator reflecting improving, not deteriorating conditions. According to the NAR release, the median existing home price in April was $201,700, 5.2% up over last year. Supporting continued price appreciation is the low level of supply, which remains below normal at 5.9 months of supply.
Metrostudy is a division of Hanley Wood, which publishes ProSales Magazine.