A home sales slump was reported by the National Association of Realtors Wednesday. However, this may be a temporary situation because mortgage rates are very low and wages are increasing as the labor market tightens. Home resales fell in July, although this was after four months of gains. Recent price rises tend to indicate the housing market to be on strong ground, so the drop in sales may be only temporary – but not necessarily so!
The NAR blamed the 3.2% slump in sales on a shortage of properties on the market. The shortage lifted the average price of homes by 5.3% over last year at this time. When the number of homes for sale is low, people have less choice so are less likely to find a home to suit them. So home sales drop in number. Right now, home sales are down 1.6% on the number a year ago. Although house prices rose just 1.2% between the first and second quarters of this year, they were 5.6% up on the second quarter of last year.
Although interest rates have held steady all this year after an increase at the end of last year, it is expected for rates to increase some time after the Presidential Election – likely at the Federal Reserve meeting on December 13-14, about a year after the last rate hike.
Many think that the demand for housing is driven by the ‘millenials’ – those generally in the 25-34 year old bracket whose job prospects increased after the recession of 2007-2009. Those in this age bracket saw unemployment drop significantly since January of last year. They therefore have more money to purchase housing than most other age groups.
The year past July, first time home buyers were responsible for 28% of home purchases. This July that figure had risen to 32%. Mortgages are cheaper now and more 25-34 year-olds are working. Home resales fell most areas, although they rose 2.5% in the West.
One of the issues with a more stable employment situation is that fewer people tend to move to get employment, so there are fewer homes on the market carousel. There is also the fact of foreclosures dropping significantly, so fewer homes are available to purchase.
Only time will tell how the housing market will pan out, although it seems that the home sales slump may last a while if interest rates rise and fewer people put their home on the market. However, if wages continue to rise, then home sales may pick up quicker than expected.
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