Real estate agents are trying to wrap their head around why sales of existing homes took an unusual decline in December. The 6.4 percent monthly move was huge, regardless of direction. According to the tally provided by the National Association of Realtors, it typically moves very slow, presenting low single digits month to month. However, the shift was one of the largest that didn’t involve any change in government policy, such as 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 Lawrence Yun, 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.
The number of homes for sale also increased by a little more than 3 percent, compared to just a year ago. CNBC believes that the low supply has been straining sales since last spring, despite the high demand, so “it would make sense that more supply would boost sales, unless this is a sign that demand is weakening.” On the other hand, Peter Boockvar,chief investment officer at Bleakley Advisory Group, says “This weakness is certainly due to the sharp home price gains along with the rise in mortgage rates.”
The slow in sales over the past six months has been blamed on affordability, though sales in December were in sync with sales in 2000. Yun also argued that affordability is much better now. “Today it is actually more affordable compared to year 2000, yet we have about 20 million more jobs, so for home sales to be roughly equivalent means that in 2018 there is an underperformance of the overall housing sector.”
While the underperformance is not due to the partial government shutdown, nor stock market volatility, interest rates did increase in October. Though they began lowering in November, rates were still high in September, meaning it wasn’t a sudden jump. CNBC reports that rates are still historically low, in which mortgage rates in 2000 were twice more of what they are now, but home prices were also lower then.
“While positive demographics and a solid job market would normally offset this relatively modest rise in mortgage rates, it’s been about 10 years since mortgage rates have been as high as they were at the November peak – suggesting that there is a larger share of current homeowners who feel they are ‘locked in’ at a lower mortgage rate … reducing the number of them who would be looking for a home at a higher mortgage rate,” said David Berson, chief economist at Nationwide.
Looking at all factors, the drop could be due to home prices declining in some areas, particularly in the West, while the rest of the nation encounters shrinking gains. “Looking ahead to 2019, expect weaker existing-homes sales as the new year ushered in a government shutdown and worsening economic uncertainty,” said Cheryl Young, senior economist at Trulia.