U.S. Housing Weakens Despite Lower Unemployment Claims

Although unemployment claims have fallen to their lowest point in fifteen years, home sales are tumbling as price gains make homes unaffordable for millions.

Throughout 2013 and 2014, housing saw steady price gains while low interest rates, which fell markedly throughout 2014, encouraged more homebuyers to the market. That trend may be meeting resistance, causing home sales to tumble as flat wages and high prices make real estate unaffordable for many.

Although unemployment claims have fallen to their lowest point in fifteen years, home sales are tumbling as price gains make homes unaffordable for millions.

Throughout 2013 and 2014, housing saw steady price gains while low interest rates, which fell markedly throughout 2014, encouraged more homebuyers to the market. That trend may be meeting resistance, causing home sales to tumble as flat wages and high prices make real estate unaffordable for many.

Weak Housing

According to the National Association of Realtors, pending home sales fell 3.7% in December. Their Pending Home Sales Index, which accounts for existing home sales throughout the country, fell to 100.7 in December, after reaching 104.6 in November. While that still indicates a gain from a year ago, the month-over-month fall was unexpected and deeply troubling to economists who have predicted a continued improvement in the home buying market.

The fall in sales surprised Lawrence Yun, chief economist for the NAR, who notes a number of trends should cause an increasing demand for housing. “More jobs, increasing consumer confidence, less expensive mortgage insurance and new low down payment programs coming into the marketplace will likely lead to more demand from first-time buyers,” said Yun.

Despite the tailwinds, pending home sales fell in the Northeast by 7.5%, by 2.8% in the Midwest, 4.6% in the West, and 2.6% in the South.

Jobless Claims

In a separate report, the Department of Labor announced that weekly initial unemployment claims fell to 265,000, far below expectations of 300,000 and a decline from the previous week’s 308,000. The four-week moving average fell to 298,500.

The decline means that unemployment claims have fallen to their lowest level since 2006, when they temporarily fell to current levels, and have remained at levels last seen in 2000. The decline in joblessness has remained stable since claims peaked in early 2009, when claims exceeded 650,000. Claims fell from above 400,000 in late 2012 to below 300,000 at the end of 2014.

Many economists expect jobless claims to continue to decline, as several indicators suggest strength in the labor market is keeping people busy. However, growing hires, falling unemployment, and lower jobless claims are not translating into wage growth. Although Americans are finding work easier than they have in nearly a generation, incomes actually fell in both real and nominal terms in December, and the fall in unemployment since 2009 has not translated into wage growth.

Many economists believe a rise in wages is necessary to keep home price growth sustainable, and to encourage more demand not only for real estate, but also for other goods and services in the economy.