U.S. Youth Miss Out on Home Sales Surge, Falling Mortgage Rates

U.S. home sales rose to their highest point in a year thanks to lower mortgage rates and a slowdown in home prices, but few young people are benefiting from the trend. 

U.S. home sales rose to their highest point in a year thanks to lower mortgage rates and a slowdown in home prices, but few young people are benefiting from the trend. 

Existing home sales saw a strong rebound in September, bucking a declining trend that caused concerns in the prior month. Total existing home sales rose 2.4% on a seasonally adjusted basis in September, according to a new report by the National Association of Realtors. In total, an adjusted 5.17 million homes were sold in the month, up from 5.05 million in the prior month, while distressed sales fell 14 percent from the prior year. The increase means homes in the U.S. are selling at their highest rate in a month even as foreclosures fall.

While home sellers are finding it easier to sell their houses, young people are still struggling to afford and purchase a home. While first-time buyers are becoming a larger part of the home buying market, at 29% of the total, they are still a much smaller portion of the market than they were before the crash in 2008.

Home prices are continuing to rise, but at a more moderate rate. The NAR study saw median existing home prices rise to $209,700 in September, 5.6% higher than a year ago. Homes for sale fell 1.3% to 2.3 million existing homes, while all-cash sales fell 33% in September compared to a year ago. The decline in all-cash sales and decline in inventories indicate the housing market is returning to pre-bubble levels of individual home buying for living in, and a fall in investors buying property to rent.

Mortgage Rates Decline

Falling mortgages rates are also helping Americans buy houses at a faster rate, as a slowdown in commodity prices and falling bond yields are helping mortgage rates fall from earlier highs. Bankrate, a website that tracks mortgages nationwide, saw 30 year fixed mortgages fall below 4% in late October, while 15 year fixed mortgages fell to almost 3%. Freddie Mac, a mortgage company, saw 30-year fixed rate mortgages fall to 4.16% in September, down 33 basis points from the prior year. The Mortgage Bankers Association sees 30-year fixed-rate mortgages down to 4.2%, the lowest level since June 2013.

Cheaper loans are helping first-time homebuyers and some people are refinancing their mortgages at lower rates, but refinancing activity remains modestly lower than the highest points reached after the housing bubble burst in 2008. According to last week’s MBA Weekly Application Survey, refinancing applications are down slightly from February, but have risen in recent weeks thanks to declining interest rates.

Lower interest rates are a tailwind to home sales, and are helping people buy more expensive homes thanks to lower monthly payments. “This is welcoming news for consumers looking to buy, although they could temporarily become more cautious by less certain economic conditions,” said NAR economist Lawrence Yun.

Uncertain Yields

The resurgence of home buying helped U.S. stocks to see one of their strongest rallies in 2014 on Tuesday, but the strong home sales trend could be short lived. Long-term U.S. Treasuries fell on the news, causing interest rates to rise. If this trend continues, mortgages could become more expensive, curtailing home sales growth in the future.

Analysts believe that the strength in home sales is welcome news, but it is still not enough to help America recover from its latest recession. Existing home sales are still lower than they were in 2009 and 2013, and remain far below pre-recession levels, despite a rising population. 

Meanwhile, single-family housing starts remain far below their historic norms on a population adjusted basis, according to the National Association of Home Builders. This means young people are statistically less likely to move into their own home than at any other point on record.