The Slowing Housing Market: Why Home Sales Are Flattening

The housing market is springing back—or is it?

Home sales soared in the spring and early summer months this year, but suddenly slowed in mid-summer. After that, sales in August fell for the second straight month, reaching the second-lowest pace of 2016.

They ended the month less than one percentage point higher that they were a year ago.

What’s the reason for the drop?

Observers list some reasons for the slower market, beginning with higher prices. Prices have risen 40 percent over the past three years, pushing many homes beyond the reach of buyers.

Among often-cited causes are the difficulties many buyers have had qualifying for mortgages in recent years. The fact is, though the approval rates for mortgages to buy homes are 50 percent higher than they were four years ago.

Currently, mortgage rates also remain at historically low levels, which makes homes less expensive than they would be otherwise for buyers using mortgages.

The housing supply may be the true culprit

The primary cause may simply be that there just aren’t enough homes for sale to meet demand.

“Hopes of a meaningful sales breakthrough as a result of this summer’s historically low mortgage rates failed to materialize because supply and affordability restrictions continue to keep too many would-be buyers on the sidelines,” said Lawrence Yun, chief economist for the National Association of Realtors.

The supply of homes for sale has been tight for the past three years and now is shrinking even faster. Total housing inventory at the end of August fell 3.3 percent to 2.04 million homes for sale, and is now 10.1 percent lower than a year ago (2.27 million).

Unsold inventory is a 4.6-month supply at the current sales pace, which is down from 4.7 months in July. Inventories in hotter markets and lower price tiers more popular with first-time buyers are twice as low as the industry average.

What is the solution?

“It is very concerning to see that inventory conditions not only show no signs of improving but have worsened in recent months from their already suppressed levels a year ago,” said Yun. “While recent data from the U.S. Census Bureau (link is external) shows that household incomes rose strongly last year, home prices are still outpacing incomes in many metro areas because of the persistent shortage of new and existing homes for sale. Without more supply, the U.S. homeownership rate will remain near 50-year lows.”

Yun has advocated stepped up new home construction to relieve the chronic shortages, but home production fell in August, and many builders are encountering shortages of skilled tradesmen, materials, and sites available for new construction.

from Total Mortgage Underwritings Blog http://ift.tt/2eoCAE5