Home Sales Slow as New Home Building Falls

Sales of existing homes are beginning to fall as low interest rates on mortgages fail to entice would-be buyers.  Existing-home sales fell 3.4% in October from the prior month, according to a new report by the National Association of Realtors. A combination of expensive options, limited inventory growth, and sluggish wage growth has made it hard for Americans to buy houses.

Sales of existing homes are beginning to fall as low interest rates on mortgages fail to entice would-be buyers.  Existing-home sales fell 3.4% in October from the prior month, according to a new report by the National Association of Realtors. A combination of expensive options, limited inventory growth, and sluggish wage growth has made it hard for Americans to buy houses.

NAR Chief Economist Lawrence Yun notes that the trend towards a “sales cooldown” was persistent, and may indicate secular difficulties in the American economy. “New and existing-home supply has struggled to improve so far this fall, leading to few choices for buyers and no easement of the ongoing affordability concerns still prevalent in some markets,” said Yun in a statement.

He added that the economy might be showing signs of persistent weakness. “Furthermore, the mixed signals of slowing economic growth and volatility in the financial markets slightly tempered demand and contributed to the decreasing pace of sales,” Yun said.

Job Creation Fails to Ignite Home Buying

Yun did acknowledge that the economy is seeing “solid job creation,” but also noted that price growth is outpacing wage growth. While wages are rising below 3% throughout the country, according to a recent study by the Bureau of Economic Analysis, the NAR said home prices are up 5.8% from the prior year, and that prices have been rising for the last 44 months in a row.

In October, the median existing home cost $219,600 in the United States, up from $207,500 a year ago.

While average Americans struggle to afford housing, all-cash purchases, mostly by investors, are at historic highs. All-cash sales were 24% of total transactions in October, the same share as in September.

Yun noted that this is pressuring first-time homebuyers and making it harder for them to buy property. “All-cash and investor sales are still somewhat elevated historically despite the diminishing number of distressed properties,” he said, adding that new home builds would help buck the trend. “With supply already meager at the lower-end of the price range, competition from these buyers only adds to the list of obstacles in the path for first-time buyers trying to reach the market.”

According to a recent report from the Census Bureau, new residential construction remains weak, with building permits up only 2.7% on a year-over-year basis in October. Meanwhile, housing starts have actually fallen by 1.8% from October 2014. The construction of single-family units was also down, while multi-family units saw a slight decline.

Additionally, existing home sales are also down. Total housing inventory fell 4.5% in October from a year ago, according to the NAR.  This limit in inventory growth may also indicate rental growth in the near term on top of rising house prices.