Falling Home Sales, Manufacturing Slowdown Signal U.S. Economic Woes

A decline in existing home sales and a slowdown in manufacturing suggest the U.S. economic recovery may be stalling.

The National Association of Realtors announced Monday that total existing home sales fell 4.9% to a seasonally adjusted annual rate of 4.82 million units in January, the lowest level since April 2014. While mortgage rates have fallen significantly from April, buyers are not coming to the market as much as many analysts had expected.

A decline in existing home sales and a slowdown in manufacturing suggest the U.S. economic recovery may be stalling.

The National Association of Realtors announced Monday that total existing home sales fell 4.9% to a seasonally adjusted annual rate of 4.82 million units in January, the lowest level since April 2014. While mortgage rates have fallen significantly from April, buyers are not coming to the market as much as many analysts had expected.

NAR Chief Economist Lawrence Yun partly dismisses the report as a sign of seasonal volatility, although he admits the data is disappointing. “January housing data can be volatile because of seasonal influences, but low housing supply and the ongoing rise in home prices above the pace of inflation appeared to slow sales despite interest rates remaining near historic lows,” he said in a statement, adding that a “lack of new and affordable listings is leading some to delay decisions.”

Median single-family home prices rose 6.3% on a year-over-year basis, to $199,800. Existing condominium and co-op sale prices rose 5.3% to $198,300 in the same time.

Unaffordable Housing

The lack of affordable housing has been a recurring theme in the post-2008 economic recovery, where real incomes have fallen yet real estate prices have risen, with many markets already becoming more expensive than their pre-recession peak. In coastal cities such as San Francisco, Seattle, and New York, real estate prices have reached all-time highs, and the ratio of multi-million dollar inventory to lower cost inventory continues to rise.

“The labor market and economy are markedly improved compared to a year ago, which supports stronger buyer demand. The big test for housing will be the impact on affordability once rates rise,” Yun said.

Because of the dearth of affordable options, unsold inventory is rising—rising 6.8% month-over-month in January. Meanwhile, all-cash sales—a sign of purchasing behavior from investors and wealthy individuals—rose from 26% of total transactions in December to 27% of transactions in January.

Lobby for Affordable Housing

The rising cost of homes has priced more Americans out of the single-family housing market, which has pushed the National Association of Realtors to lobby for more government support for affordable and low-cost condominium alternatives.

“NAR has urged the FHA to develop policies that will give buyers access to more flexible and affordable financing opportunities and a wider choice of approved condo developments,” said NAR President Chris Polychron, who is also a real estate broker based in Arkansas.

Rising costs are good for real estate brokers, who earn higher fees based on property values, and for property owners, who can sell their real estate at a higher price.

However, the trend hurts first-time homebuyers and young Americans who are attempting to get on the property ladder—yet have seen their real incomes stagnate or fall because of broader economic stagnation. Some economists believe a rising tide of retirees in the U.S. have created downward price rigidity in the real estate market, as these people refuse to sell their houses at prices significantly lower than the peaks of the housing bubble of the 2000s.