US real estate brokers are trying to figure out why sales of existing homes dove in December.
US home sales fell to their lowest mark in 3 years in December and house price increases slowed sharply, suggesting a further loss of momentum in the housing market.
A survey last Friday showed consumer sentiment declined in January to its lowest level since President Donald Trump was elected more than 2 years ago.
The NAR said existing home sales declined 6.4% to a seasonally adjusted annual rate of 4.99-M units last month. The lowest mark since November 2015.
The 6.4% monthly move was unusually large. The tally usually moves in the very low single digits month to month. The shift was one of the largest that did not involve some sort of change in government policy, like the homebuyer tax credit.
“The latest decline is harder to explain. Perhaps it is the decline in consumer confidence that’s been occurring in the latter half of 2018,” said the chief economist for the Realtors.
“The latest numbers do not reflect the lower, current mortgage rates compared to the November figures, so it’s really harder to explain,” he said.
The housing market has been hobbled by higher mortgage rates as well as land and labor shortages, which have led to tight inventory and more expensive homes.
This weakness is due to the sharp home price gains along with the rise in mortgage rates.
Affordability has been blamed for slower sales over the past 6 months, but sales in December matched the same pace as in Y 2000, and affordability is better now.
Today it is actually more affordable compared to year Y 2000, yet we have about 20-M more jobs, so for home sales to be roughly equivalent means that in Y 2018 there is an under-performance of the overall housing sector.
But there is good news
The 30-year fixed mortgage rate has dropped to a 4-month low, with much of the moderation occurring in 2-H of December, and house price inflation is slowing. The median existing house price increased 2.9% from a year ago to $253,600 in December. That was the smallest increase since February 2012.
Wage growth topped 3.2% in December, outpacing house price gains for the 1st time since February 2012, according to the NAR.
While economists expect affordability to improve, they also caution that changes to the tax code in December 2017, which limited deductions for mortgage interest and property taxes, had reduced the appeal of home-ownership.
A survey last week showed a rebound in homebuilders’ confidence in January amid hope that the moderation in mortgage rates “will help the housing market continue to grow at a modest clip as we enter the new year.”
The partial government shutdown has affected the Commerce Department, leading to the suspension of the publication of data compiled by its Bureau of Economic Analysis and Census Bureau, including new home sales, housing starts and building permits.
Data released before the shutdown had pointed to persistent weakness in the housing market, with economists estimating that housing would again be a drag on GDP in Q-4. Residential construction has subtracted from GDP growth since Q-1 of Y 2018.
“Looking ahead to 2019, expect weaker existing-homes sales as the new year ushered in a government shutdown and worsening economic uncertainty,” said the senior economist at Trulia.
Not everyone is as pessimistic about housing.
There’s no shortage of warning signs for the housing market, but Bank of America (NYSE:BAC) says investors should not fear the worst.
“Do not believe the narratives of a housing collapse,” a BoA economist wrote in a note to clients Tuesday. She said the challenges facing the sector “should only be a slight drag on growth” and that “the recent decline in mortgage rates is well timed, ahead of the Spring selling season.”