In case you needed further proof that all is not well in the economically critical land of home sales, this last week we learned that national existing home sales plunged by a shocking 10.3 percent on a year over year basis. The total number of sales for all homes, including single family, townhouses, co-ops, and condos, declined to an adjusted total of only 4.99 million per the NAR National Association of Realtors. The chart below tells the sordid story:
This just happens to be the largest one-time year over year decline in eight years, going all the way back to May of 2011. This was when the country was squarely in the grips of the last housing market bust. Some have attempted to pin this significant latest housing market decline on the government shutdown, but the real culprit turns out to be far more sinister and devious— rising mortgage and interest rates. WolfStreet informed that:
“Mortgage rates ticked up from 4.2 percent in December 2017 for an average conforming 30 year fixed rate mortgage, to 5.2 percent at the peak in mid November, according to the Mortgage Bankers Association. Then mortgage rates fell sharply and hit 4.75 percent by mid December.”
Mind you analysts had anticipated somewhat of a decline last month in the home sales figures. The shock was how sharply they crashed and burned. The Wall Street Journal had forecast a decline from November’s total sales of 5.33 million units to what they believed would be December’s 5.25 million units rate. WolfStreet likened the crash to 4.99 million units as “sort of a wake up call.” Sales had not been this low since going back to May of 2015.
Nor is this merely a case of one or two regions woefully under performing the rest of the nation either. The December regional home sales breakdown showed weakness across the board, with the West crashing 15 percent to reach an annualized rate of 1.02 million units and the Midwest sharply dropping 10.5 percent to touch 1.19 million units while the Northeast declined 6.8 percent to 690,000 units and even the more resilient South dropped 5.4 percent to be the best performing region with 2.09 million units sold.
Even with the total national supply of homes rising, an ongoing serious shortage of affordable housing still exists. The NAR stated that, “there is still a lack of adequate inventory on the lower priced points and too many in the upper priced points.”
Home prices had risen drastically during a near-decade of impossibly lower interest rates. Some observers have called this the Housing Bubble 2.0. WolfStreet says that you are witnessing the air at long last bleed out of the Housing Bubble 2.0. With the Fed’s policies, this was an inevitable and foregone conclusion. WolfStreet put it this way:
“Housing markets move slowly and normally play out over years. Big sudden moves even in local markets are rare. On a national basis, Housing Bust 1 took over five years to play out and was helped along by over 10 million job losses and a banking system that was teetering on the brink.
This housing downturn moved into the scene in 2018, a year when the economy was strong and created 2.6 million jobs. This downturn has been triggered by sky-high prices and rising mortgage rates, not by a recession or job losses. Those events — unavoidable as part of the business cycle — are still waiting in the wings.”
Now all economists agree that the housing market numbers are leading economic indicators which signal the effects of rising interest rates for the overall economy. The question remains will the sudden about face at the Federal Reserve be sufficient to re-inflate the leaking housing bubble? Most observers think that the genie is already out of the bottle. Some economists like Peter Schiff are already saying a Fed-induced recession is a “done deal.”
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