3 Reasons Spring Weather Won’t Heat Up Home Sales


Source: Flickr / Robert S. Donovan.

March is here, and you might think that the recovering housing market will soar this spring, as a brighter economy and still-attractive mortgage rates converge to lift the sector to new heights. Even with the 2013 foreclosure rate falling to the lowest in five years , and home prices beginning to rise, however, the spring season looks more poised to fizzle than sizzle.

Why is the market in such a funk? Some analysts blame the severe winter weather, though housing starts in the Northeast jumped by a seasonally adjusted 62%. It seems that there are multiple issues at work here, which can be lumped into three major categories – the first of which impacts affordability.

Rising home prices and interest rates
While the increase in housing prices is a positive indicator for a healing market, the fact is that higher sticker prices mean fewer buyers lining up. And, though 30-year mortgage rates remain historically low, an increase from 4% to 5% translates into a $60 rise in the monthly payment on a $100,000 loan.

Add in the effects of new "qualified mortgage" rules that put more emphasis on the borrower's ability to repay the loan, and many prospective buyers have doubtless found themselves priced right out of the market.

Demand and inventory are low
According to online real estate brokerage Redfin, demand for houses has plummeted for the first six weeks of this year, with only an 8% increase in signed offers year over year, compared with a jump of 51% last year.

Some of this problem is likely due to the lack of homes for sale – inventory is at its lowest in four years. This issue is being compounded by a sort of Catch-22: sellers won't list until they find something to buy, which, in turn, is constraining the supply of available houses on the market.

Underwater borrowers are stuck in a rut
Rising house prices lifted another 4 million homeowners out of negative equity last year, but nearly 10 million still owe more on their mortgages than their homes are worth. This means that, even when they want to move, these homeowners cannot realistically sell at a loss. This scenario has the effect of keeping both houses and buyers out of the market.

This interactive map by Zillow makes clear just how prevalent this problem continues to be, six years after the financial crisis. For those who bought closer to the peak of housing prices, just breaking even might be an unattainable dream.

For these reasons, this year's house-selling season will likely be a disappointment to both buyers, and sellers. Sadder still is the fact that, for the very same reasons, next year is apt to look much the same.

Stocks to warm up to
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2876138, ~/Articles/ArticleHandler.aspx, 7/22/2014 4:33:43 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement