Sales of existing homes dropped 6.4% in December, the National Association of Realtors revealed yesterday, as uncertainly and turmoil on the macro-economic level apparently had an impact on everyday consumers.
“Home sales were weighed down by a surge in stock-market volatility, uncertainty as the government shutdown began and rising interest rates, which pushed up mortgage rates in November to their highest level in seven years,” write Laura Kusisto and Sarah Chaney for the Wall Street Journal in a story that leads the print edition.
“Housing also suffered from high home prices and a dearth of starter homes in major markets, a nagging problem for much of last year that shows little sign of abating. A growing U.S. economy and low unemployment haven’t kept home sales from sputtering.”
Sales of existing homes, in turn, have a big impact on the health of the market for consumer goods and services. The NAR estimates that a job is created for every two home sales and that each home sale contributes about $60,000 to the economy.
The NAR says sales “plunged … to a seasonally adjusted annual rate of 4.99 million last month, the worst pace in almost three years. For all of 2018, sales of existing homes fell 3.1% from a year ago to 5.34 million units, the weakest total since 2015,” reports the AP’s Josh Boak.
“Home sales have slowed after years of strong price growth and modest inventories hurt affordability. More properties are sitting on the market, as days until a signed contract increased to 46 from 40 days a year ago,” Boak adds.
For its part, the NAR says that high mortgage rates during much of the year are partially to blame for the decrease in home sales at the end of 2018, and it’s looking for lower rates to perk things up.
“The housing market is obviously very sensitive to mortgage rates,” says Lawrence Yun, the NAR’s chief economist. “Softer sales in December reflected consumer search processes and contract signings activity in previous months when mortgage rates were higher than today. Now, with mortgage rates lower, some revival in home sales is expected going into spring.”
Economists at Bank of America Merrill Lynch agree with that assessment, Andrea Riquier writes forMarketWatch.
“The decline in mortgage rates is very well timed ahead of the spring selling season. We suspect that potential homebuyers who may have been scared from the market during the period of rising rates in the fall could see it as an opportunity to jump back in. Moreover, the labor market is currently very strong with a high number of job openings and upward pressure on wages,” they believe.
Others are more pessimistic.
“While mortgage rates did drop in December, the expectation is that they will move higher this year, and that will hurt affordability further,” CNBC.com's Diana Olick reports.
“Looking ahead to 2019, expect weaker existing-homes sales as the new year ushered in a government shutdown and worsening economic uncertainty,” Cheryl Young, senior economist at Trulia, tells Olick.
“Other economists blamed everything from rising home prices -- the median existing-home price rose 2.9% last month despite lower sales -- to turmoil in the stock market for the [December] decline. Given that the pace of home sales is where it was before Trump became president, MUFG Union Ban chief economist Chris Rupkey said to Reuters that the decline signaled that ‘the initial confidence boost from the new ideas and new legislation is falling flat,’” Kevin Kelleher writes for Fortune.
So is this a good time to buy?
“The 30-year fixed mortgage rate is at a four-month low. … And the increase in the median sales price leveled off in December to 2.9%, year-over-year. These figures point to a somewhat better situation for potential homebuyers, but with housing inventory so tight, would-be homebuyers need to act quickly should they find the perfect place for them,” observes Kris Kinkade for The Motley Fool.
“Mortgage rates are still high compared to recent years, and other headwinds, like volatile financial markets and still-high home values, don't help. Add in the reduced homeownership incentives created by the 2017 tax law -- especially in costlier, high-density markets and high-tax areas -- and the uncertainty level for buying a home rises,” Kinkade adds.
Some positive affirmations might help.
“We’re in a mental recession,” Sam Khater, chief economist at Freddie Mac, tells the WSJ’s Kusisto and Chaney. “It’s a constant stream of negative headlines for a couple of months … it wears on you.”