Real Estate Panic? Home Sales Fall, Prices Keep Rising

Economic analysts are beginning to call the real estate market a “panic” as home sales continue to fall but prices keep rising.  New home sales fell by an annualized 511,000 units in March, the third straight month of declines. New home sales have not fallen for three weeks in a row since 2011.

Economic analysts are beginning to call the real estate market a “panic” as home sales continue to fall but prices keep rising.  New home sales fell by an annualized 511,000 units in March, the third straight month of declines. New home sales have not fallen for three weeks in a row since 2011.

While previous first-quarter declines were attributed to extreme cold weather on the eastern seaboard, keeping buyers from viewing and purchasing units, regional trends indicate weather has nothing to do with the slowdown. The West saw the biggest decline, which offset increases in the South and Midwest. According to the Census Bureau, sales in the West fell 33,000, or a loss of 23.6%.

In one note to investors, an investment bank analyst warned that the mood in real estate was quickly turning into a “panic” and that trends throughout the country were extremely unsustainable. The analyst noted that rising home prices, especially in upper-end markets, were driving out many potential homebuyers and effectively shrinking real estate’s addressable market.

Also pointing to stagnant wage growth, the analyst said many Americans would soon be unable to afford to live in America, even if they work full time.

Price Gains Continue

Despite the warnings about an unsustainable housing market, the trends appear constant. A new study by Black Knight Financial Services, a data provider and research firm, shows that home prices rose 5.3% year-over-year in February, confirming similar studies by Zillow, Case-Shiller, and CoreLogic.

Additionally, Black Knight reported 10 cities have reached their highest average home price in history. San Jose, California was the most expensive region, with average home prices of $891,000, while San Francisco, at $745,000, came second.

“National home prices are now 27.5% above where they were at the bottom of the market at the start of 2012,” said the report.

Fed Comments Awaited

In light of the increasingly weak housing market, analysts have become further convinced that an interest rate hike is unlikely to come in April and probably not until June or later.

Goldman Sachs economists Jan Hatzius and Zach Pandl said they expect the Fed to see “nearly balanced” risks to the economy, an indication of improved sentiment thanks to receding global growth fears.

“Financial markets once again expect the FOMC to stand pat at its upcoming meeting. Indeed, minutes from the March FOMC meeting essentially ruled out any action next week,” said the analysts.

Internal Fed indicators are signaling worsening economic conditions that are likely to keep the Federal Open Market Committee from increasing interest rates in the near term. A new Dallas Federal Reserve study of manufacturing saw a surprising decline in sentiment, with the April Manufacturing Outlook index falling to -13.9, weaker than March’s reading and below expectations of -9.0.

The Dallas study confirms previous reports from the Institute of Supply Management, which said manufacturing growth has been stalling throughout 2016 and the trend is worsening.