Reports from local real-estate agent groups in some of the markets that were the first to rebound, including Las Vegas, Phoenix and San Diego, show year-over-year declines in March home sales. February data for pending home sales nationally—a barometer of early-spring activity—show a decline of 11% from a year ago.
And in markets around the country, fewer people are showing up at open houses. An index of home-buyer traffic in 40 U.S. markets compiled by Credit Suisse was down a little more than a third from March of last year. In some parts of the country, cold weather has put a damper on traffic.
New construction of single family homes is also increasing slowly, according to new data released Wednesday. New building permits for single-family homes in March fell 1.2% below the year-earlier level, the Commerce Department said Wednesday. New single-family home starts rose 1.9% from a year earlier.
"Overall, even after adjusting for weather, it has been worse than what most people expected," said Tom Lawler, an independent housing economist in Leesburg, Va.
The sluggish start to the spring home-buying season—a crucial period for sales because families typically want to lock into a school district by the end of summer—comes as investors cut back on purchases of homes that can be rented or flipped for a quick profit. Meanwhile, potential buyers are still adjusting to a sharp rise in both home prices and borrowing costs over the past year. With prices and mortgage rates up, the nation's median monthly home payment—including principal and interest—has risen 20% in the past year to about $900, according to John Burns Real Estate Consulting.
The slow spring so far is in some ways a testament to just how swift the past two years of recovery have been. There are fewer distressed properties like foreclosures, and prices of those that remain are higher, so investors are buying fewer homes. At the same time, there has been a continued increase in the number of nondistressed purchases made by ordinary buyers and families, further reducing the inventory of homes for sale.
That has allayed economists' fears that the "shadow inventory" of unsold homes would choke off the recovery.
But there are now two trends at play that potentially could extend a springtime swoon into a summer slump: a dearth of properties for sale in some markets and an abundance of too-richly-priced homes in other markets.
A report released Tuesday by DataQuick, a San Diego research company, showed that Southern California home sales had their second-slowest March in two decades, as rising prices and a thin supply of homes damped sales.
Prices hit a six-year high—not just because buyers are bidding up the homes that are left, but also because there has been a shift away from the first-time home-buyer market to middle and higher-end sales, said Andrew LePage, an analyst at DataQuick.
In Phoenix, the supply of homes for sale is adequate, if not ample, but prices are keeping buyers at bay. There, sales of previously owned homes fell nearly 18% in March from a year earlier, while inventories rose 44% to a three-year high, according to the Arizona Regional Multiple Listing Service Inc.
With more inventory, potential buyers such as Sarah Coffeen can afford to be deliberate with their search.
Ms. Coffeen, 31 years old, has been looking for a home in the Phoenix area since January. Her hope is to find a single-family home in the $120,000 range, and until then she and her daughter are living with her parents to help save for a down payment.
Her wait may pay off. While the Phoenix market is still fairly competitive, the inventory of homes for sale has started to tick up, and price gains are slowing.
"I'm pretty much willing to take my time because so much stuff is coming on the market," said Ms. Coffeen, a paralegal. "Prices are definitely down from the fall. I don't know if that mini bubble burst…but homes seem more reasonable now."
Indeed, Phoenix has been one of the nation's hottest housing markets over the past two years, leading the nation in what has to this point been a strong recovery. Now—along with Las Vegas and the Inland Empire region of California that is east of Los Angeles—it is among those cities where many sellers are reducing prices.
According to Zillow, some 28% of U.S. home listings have had at least one price cut in February, compared with about 26% last February. But in markets like Phoenix and Las Vegas, the degree of price cuts has been much more dramatic. In Phoenix, for instance, about 45% of February listings had at least one price cut, compared with 32% a year ago.
Of course, real estate is all local, and much of the recent slowdown has been concentrated in markets through the West and Southwest that had been leading the recovery. A recent bright spot has been markets in the mid-Atlantic and Northeast——like New York, Fairfield County, Conn., and Baltimore—which had been lagging behind hotter regions last year but are now looking much better.
"Markets in the West were skewed by the ramp up in distressed sales last year and now they're cooling, whereas the Northeast didn't have that so now we're looking better," said Jonathan Miller, president of Miller Samuel Real Estate Appraisers & Consultants in Manhattan.
Steve Capen, a real-estate agent in St. Petersburg, Fla., decided last week to hire another agent for his company after seeing stronger buyer demand. Last summer, when mortgage rates went up, "everyone panicked," he said, and Mr. Capen shelved plans to bring on a new hire. "But rates have been sitting there for a while now, and it looks like everyone's adjusted to it."
Mr. Capen listed recently a three-bedroom home in Palm Harbor, Fla., for $275,000 that went under contract within three days. "The homes that are in tip-top condition—they still move fast," he said.
Many observers expect the market to work past the sluggish start to spring.
"While home builder sentiment has started the year on a soft note, we expect that rising home prices, low inventory levels, and stronger demand will boost construction activity as the spring selling season progresses," Barclays Capital economist Michael Gapen wrote in a note to clients Tuesday.
Housing analyst Ivy Zelman cut her forecast for sales of existing homes this year but says she's still optimistic about the U.S. housing recovery.
In a report Friday, her firm Zelman & Associates said it expects a 5% drop in sales of previously owned homes for 2014 to a seasonally adjusted annual level of 4.8 million units. At the start of the year, the firm had forecast nearly a 6% gain from last year.
Ms. Zelman isn't changing her forecasts for new-home sales, which are forecast to hit 505,000 this year, up 17% from last year. Her estimates of new-home construction were mostly unchanged.
"We're bullish still," she said.
Ms. Zelman said she trimmed her home-sales forecast in part because of sustained declines in foreclosures and other distressed properties coming to market. She estimates the supply of those homes is down 20% from a year ago. Reduced competition could benefit home builders.
For now, real-estate agents see a buyers' market that helps explain the slow spring so far.
Torrey McHale, Ms. Coffeen's real-estate agent in Phoenix, said that when he looks at listings data, he sees more homes for sale and less buyer activity. And when he hits the street with clients, it is harder to get them to close.
"It's been more difficult getting buyers under contract because if they don't like one house they'll just go onto the next," he said. "Last summer was a huge sellers' market. I'd walk into homes with buyers and there would already be three offers on the home. Listing agents and sellers got greedy and start raising prices really fast. I think they did overshoot and now it's kind of turned."
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Steve Hill Sandra Brenner
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