US existing home sales fall 3.3% in April. Is homeownership affordable anymore?

A white-hot spring housing market cooled slightly in April, begging a question that has also plagued the retail sector in recent weeks: If many Americans can’t afford to participate, how much can housing really grow?

After surging in March, Existing home sales fell 3.3 percent to a 5.04 million annualized pace in April, according to a report released Thursday by the National Association of Realtors (NAR).  The result was well below the 5.23 million pace analysts had expected. Even with the drop, it was the seventh consecutive month of year-over-year sales increases, and a 6.1 percent uptick from April 2014.

Even as sales have varied from month to month, price growth has continued unabated. The median price for a home in April was $219,400 – an 8.9 percent increase from April 2014.

The dip in sales was no indication of a dip in demand. Last month, homes put up for sale were typically gone in just 39 days, their fastest clip since July 2013. Almost half of the homes sold in April were on the market less than a month.

"Housing inventory declined from last year and supply in many markets is very tight, which in turn is leading to bidding wars, faster price growth and properties selling at a quicker pace," NAR chief economist Laurence Yun said in the report. "To put it in perspective, roughly 40 percent of properties sold last month went at or above asking price.”

In terms of growth, the housing market is facing the same conundrum as other areas of the consumer economy. By broad measures, things are improving, but for most Americans, they aren’t improving enough to translate into a change in the way they live. Recent low gas prices have put more money into people’s pockets, for example, but a lot of it is going towards catching up on daily expenses or paying down outstanding debts. Retailers are feeling it, with chains like Wal-Mart seeing their sales and in-store traffic slow.

Home ownership, too, is fading, hitting a 25-year low in 2015, according to the Census Bureau. Thanks to surging prices and heightened demand for lower-priced homes, even people who would like to take the plunge into home ownership are being priced out. According to a recent RealtyTrac report, house prices in the US ballooned 17.3 percent between 2012 and 2014.  Over the same period, wages inched up just 1.3 percent. 

Meanwhile, wealthy Americans who saw their nest eggs grow thanks to a booming stock market over the past six years have taken advantage in the housing market as well. Sales of homes priced over $1 million jumped 13 percent year-over-year in April, according to a report from CNBC and Redfin. Sales of vacation homes surged 57.4 percent from 2013 to 2014, according to the NAR. “Affluent households have greatly benefited from strong growth in the stock market in recent years, and the steady rise in home prices has likely given them reassurance that real estate remains an attractive long-term investment,” Mr. Yun noted.

There are signs that access to the housing market could be widening. In a separate report released earlier this week, housing starts, a measure of new home construction, surged 20.2 percent to its best pace since 2007. “Supply constraints continue to push home prices skyward, but new home sales are picking up and new construction is beginning to follow suit,” IHS Global Insight economists Patrick Newport and Stephanie Karol wrote in an e-mailed analysis. “These developments should help ease supply pressures.”

 But the housing market, along with economy in general, may never look the way it did pre-Recession, says Diane Lim, chief economist for the Committee for Economic Development in Washington, in a phone interview. Even if the economic constraints subside, “people aren’t as interested in goods anymore,” she says. “They value experiences and free time more than the big house or the fancy car.” 

Indeed, for both economic and social reasons, Millennials have lower rates of homeownership than their Boomer parents did at their age, and they tend to rent later into life. But more circumspect spending, on items as big as houses and as small as a pricey pair of earrings, may be the new normal, Ms. Lim says. “There’s a wariness there that isn’t going away. But people were overly optimistic before, counting on house prices to sustain their level of consumption and going into too much debt. Some of this is good for the longer term.”