Housing Market Conditions

The housing market data has been somewhat disappointing this year, and the most recent reports did little to reverse the trend. In July, both new and existing home sales decreased a little from June. For existing home sales, which make up roughly 90% of the market, this was the fifth straight month of declines, and they were lower than a year ago. The inventory of existing homes available for sale fell slightly from June to a 4.3-month supply. A 6-month supply is considered a healthy balance between buyers and sellers. Sales of new homes fell to the lowest level since October 2017.

A number of factors have contributed to the loss of upward momentum in home sales this year. One big reason is a lack of inventory in many regions, especially for lower priced homes. Single-family home construction is essentially flat from a year ago, and it is not meeting the demand at the lower end of the market. Builders say that rising land, material, and labor costs are obstacles to a faster pace of construction and make adding entry-level homes less desirable due to lower profit margins. For decades, single-family housing starts averaged about 1.1 million per year. Following the financial crisis in 2008, however, this figure fell to a low of 350,000 in 2009, and now is holding steady at levels around 850,000.

Demographic changes are another cause for slowing home sales. Younger people today often place a higher emphasis on mobility than they did in the past. They acknowledge the possibility of quick job changes and value the option for living in different cities, which favors renting over owning. They also tend to want to live closer to downtown or other popular neighborhoods, which often are more expensive. Surveys indicate that millennials today are more likely to wait until they get married or have children to settle down and buy a home.

The takeaway is that home sales may have stalled for a while, but this does not mean that the underlying housing market is weakening. Knowing that buyer demand is there, home builders are diligently trying to ramp up production. The economy and the labor market remain quite healthy. Younger people may be waiting longer on average to purchase homes, but this is simply postponing demand to the future. In short, current economic conditions may have combined to temporarily dampen home sales, but there are plenty of reasons to be optimistic going forward.

2018-08-29T19:46:45+00:00 August 29th, 2018|Categories: Uncategorized|Tags: , |