For the second consecutive month, home sales are down and it looks like the housing recovery is going to dip a bit more before bouncing back. But what is causing this challenge and what will fix it? Let’s dig in.
Existing home sales fell 0.9 percent in August compared to July, but are up 0.8 percent than August of last year, according to the National Association of Realtors (NAR). Sales are at their second-lowest pace of 2016. The national average time on market remained 36 days in August (unchanged from July, down “considerably” from 47 days in August 2015).
Like a broken record, home prices continue to rise, inventory levels remain tight, and despite mortgage rates hovering near record lows (and the Fed yesterday deciding to leave the rates untouched), buyers aren’t buying as they would in a normal market.
Economists point to the not-yet-recovered labor market and diminished labor participation rates combined with student loan debt as primary drivers of the trepidation in the market. We would add political uncertainty to that mix.
Dr. Lawrence Yun, NAR Chief Economist, said, “Hopes of a meaningful sales breakthrough as a result of this summer’s historically low mortgage rates failed to materialize because supply and affordability restrictions continue to keep too many would-be buyers on the sidelines.” Yun has long asserted the restrictive nature of affordability challenges in America.
Median home price hits $240,2000
NAR reports the median home price as $240,500 which is up 5.1 percent from August 2015, marking the 54th consecutive month of year-over-year gains. Inventory fell for the 15th month in a row, down 3.3 percent in August and is 10.1 percent lower than this period last year. All eyes remain on the share of first-time buyers which fell to 31 percent.
“It’s very concerning to see that inventory conditions not only show no signs of improving but have actually worsened in recent months from their already suppressed levels a year ago,” added Yun.
“While recent data from the U.S. Census Bureau shows that household incomes rose strongly last year, home prices are still outpacing incomes in many metro areas because of the persistent shortage of new and existing homes for sale,” Yun stated. “Without more supply, the U.S. homeownership rate will remain near 50-year lows.”
Sales actually surged in the Northeast
Sales in the Northeast surged 6.1 percent in August compared to July, and the median price rose 0.8 for the year to $274,100.
In the Midwest, sales fell 0.8 percent in August, but are 0.8 percent above August 2015, so we’ll call this one a draw. The median price rose 5.5 percent from last year to $190,700.
Home sales dipped 2.7 percent in the South for the month, and the median price was $209,700, fully 6.7 percent higher than August 2015.
Finally, existing home sales in the West fell 1.6 percent, but remain 0.8 percent higher than a year ago. The median price was $347,400, rising 9.2 percent in just one year.
So what will fix the market?
Jobs. Jobs is the cure-all. A higher labor participation rate, and an increase in overall employment in higher paying jobs will improve the market. That alone tackles the student debt holding back first time buyers, addressed the affordability issue, and interest in the market. In a contentious political year, there is no current consensus on what next year brings, but projections from economists all point to a full recovery, but not overnight.