U.S. Housing Market Can’t Find Any Buyers
Something is broken in the U.S. housing market.
Have you seen the recent statistics lately? It looks like home prices could be setting up for a decline. That’s because there aren’t many buyers out there.
Consider existing homes sales. In June, sales of already built homes declined 1.7% from previous month and 2.2% year-over-year.
“Home sales are running at a pace similar to 2015 levels – even with exceptionally low mortgage rates, a record number of jobs and a record high net worth in the country,” said Lawrence Yun, chief economist at the National Association of Realtors, an organization tracking sales of existing home sales in the U.S. (Source: “Existing-Home Sales Falter 1.7% in June,” National Association of Realtors, July 23, 2019.)
New home sales are dismal, too. In May, sales of new single‐family homes came in at an annual rate of 626,000 units. That’s down 7.8% relative to April 2019 figures and 3.7% below May 2018 figures. (Source: “Monthly New Residential Sales, May 2019,” U.S. Census Bureau, June 25, 2019.)
Going back a little further, in March 2019, the annual sales rate of new single‐family homes was 705,000 units. So May new home sales figures were down 11.2% from March.
Building permits, a measure of demand in the U.S. housing market, don’t imply anything good, either. In June, the annual rate of building permits amounted to 1.22-million units. That is a decline of 6.1% from May 2019 and down 6.6% from June 2018. (Source: “Monthly New Residential Construction, June 2019,” U.S. Census Bureau, July 17, 2019.)
This Is Why You Should Worry
Major U.S. housing market statistics say that demand in slowing down.
What do you think will happen when there are too few buyers? Well, sellers may be forced to lower their prices, which could bring down overall home prices.
For buyers (that have savings and are able to secure a mortgage) this may be good, but for everyone else, it could be a very bad news.
According to Corelogic Inc (NYSE:CLGX), a property insights and solutions provider, there were two million homes in the U.S. economy with negative equity at the end of the first quarter of 2019. Negative equity is when the value of the home is lower than that of the mortgage. (Source: “CoreLogic Reports the Negative Equity Share Fell to 4.1% in the First Quarter of 2019,” Corelogic Inc, June 6, 2019.)
This coul apply to even more homes if prices continue to decline. Don’t forget that for a lot of Americans, the home is their primary retirement asset.
Home construction companies could face a lot of headwinds as well. If homes are not being sold, will a similar number of workers be hired? It’s very unlikely.
It’s not just workers that get hurt; investors who own their stock could come under fire too. If home construction companies lose money, will their stock price increase? Again, very unlikely.
What’s more, a struggling U.S. housing market could hurt the U.S. economy. The value created by the real estate market is huge, so if it slows, it could also drag down growth rates.
Don’t ignore the U.S. housing market. It’s broken and could create a lot of problems in the coming months and quarters.