Home Sales Slump Explained

The National Association of Realtors believes that the sales slump that occurred between August and September was due to increasing mortgage interest rates, despite economists’ shared belief that …

The National Association of Realtors believes that the sales slump that occurred between August and September was due to increasing mortgage interest rates, despite economists’ shared belief that the rising percentages would not slow the housing recovery. NAR analysts pointed to the government shutdown as an exacerbating factor that contributed to buyers’ reticence in entering the market. Further, as the recovery marches forward and prices continue to rise, housing affordability is beginning to fall in many markets around the country. For more on this continue reading the following article from TheStreet.

Home sales fell significantly from August to September, and real estate industry experts are pointing to higher interest rates and skittish consumer sentiment for the decline.

The National Association of Realtors is out with data this week showing its benchmark Pending Home Sales Index fell from 107.6 in August to 101.6 in September.

The NAR says that "higher mortgage rate and higher mortgage prices curbed buying power" in September, and the lead-up to the federal government debt standoff Oct. 1 didn’t help matters, either.

"Declining housing affordability conditions are likely responsible for the bulk of reduced contract activity," says Lawrence Yun, the NAR’s chief economist. "In addition, government and contract workers were on the sidelines with growing insecurity over lawmakers’ inability to agree on a budget. A broader hit on consumer confidence from general uncertainty also curbs major expenditures such as home purchases."

Claim up to $26,000 per W2 Employee

  • Billions of dollars in funding available
  • Funds are available to U.S. Businesses NOW
  • This is not a loan. These tax credits do not need to be repaid
The ERC Program is currently open, but has been amended in the past. We recommend you claim yours before anything changes.

Yun is fairly bearish on sales of existing homes, although residential home prices should weather the storm – at least for the next 60 to 90 days or so.

Overall, he says, pending home sales are at a 2.5 year low on a year-to-year basis. And that’s a troubling sign for the near-term future on home sales.

"This tells us to expect lower home sales for the fourth quarter, with a flat trend going into 2014," Yun says. "Even so, ongoing inventory shortages will continue to lift home prices, though at a slower single-digit growth rate next year."

One factor that could derail that prediction are U.S. mortgage rates, which fell last week. According to the BankingMyWay Weekly Mortgage Rate Tracker, the average 30-year fixed mortgage rate fell from 4.37% to 4.26%. Those numbers are roughly supported by Freddie Mac, which has 30-year rates falling from 4.57% in early September to 4.13% in late October.

Historically, lower mortgage rates lead to stronger home sales, not weaker home sales.

But in a residential home sales market with myriad moving parts, lower interest rates alone — if they remain low, which is no guarantee — may not be enough to propel the housing market forward. A stronger jobs picture, more robust consumer sentiment and some stabilization among warring political factions in Washington, D.C., would all also have to round into form to keep home sales churning.

That may still happen, but after some solid numbers coming out of the real estate market (see here and here), the NAR report is a sobering one for the real estate market.

This article was republished with permission from TheStreet.

advertisement

Does Your Small Business Qualify?

Claim Up to $26K Per Employee

Don't Wait. Program Expires Soon.

Click Here

Share This:

In this article