Real estate brokers reportedly are trying to figure out why sales of existing homes plunged in December.
U.S. home sales tumbled Tuesday to their lowest level in three years in December and house price increases slowed sharply, suggesting a further loss of momentum in the housing market.
The weak report from the National Association of Realtors (NAR) on Tuesday was the latest indication of slowing economic growth. A survey last Friday showed consumer sentiment dropped in January to its lowest level since President Donald Trump was elected more than two years ago.
The NAR said existing home sales declined 6.4 percent to a seasonally adjusted annual rate of 4.99 million units last month. That was the lowest level since November 2015, Reuters explained.
CNBC reported that the 6.4 percent monthly move was unusually large, regardless of direction. The tally usually moves in the very low single digits month to month, CNBC reported. The shift was one of the largest that didn't involve some sort of change in government policy, like the homebuyer tax credit.
"The latest decline is harder to explain. Perhaps it is the decline in consumer confidence that's been occurring in the latter half of 2018," said Lawrence Yun, chief economist for the Realtors. "The latest numbers do not reflect the lower, current mortgage rates compared to the November figures, so it's really harder to explain," he told CNBC.
The housing market has been stymied by higher mortgage rates as well as land and labor shortages, which have led to tight inventory and more expensive homes, Reuters said.
"This weakness is certainly due to the sharp home price gains along with the rise in mortgage rates," Peter Boockvar, chief investment officer at Bleakley Advisory Group, told CNBC.
Affordability has been blamed for slower sales over the past six months, but sales in December matched the same pace as in 2000, and Yun argues that affordability is better now, CNBC explained.
"Today it is actually more affordable compared to year 2000, yet we have about 20 million more jobs, so for home sales to be roughly equivalent means that in 2018 there is an underperformance of the overall housing sector."
In addition, existing home sales are now the weakest since Trump was elected, said MUFG Chief Economist Chris Rupkey, “signaling the initial confidence boost from the new ideas and new legislation is falling flat.”
But there are glimmers of hope. The 30-year fixed mortgage rate has dropped to a four-month low, with much of the moderation occurring in the second half of December, and house price inflation is slowing. The median existing house price increased 2.9 percent from a year ago to $253,600 in December. That was the smallest increase since February 2012, Reuters said.
Wage growth topped 3.2 percent in December, outpacing house price gains for the first time since February 2012, according to the NAR. While economists expect affordability to improve, they also caution that changes to the tax code in December 2017, which limited deductions for mortgage interest and property taxes, had reduced the appeal of homeownership.
A survey last week showed a rebound in homebuilders’ confidence in January amid hope that the moderation in mortgage rates “will help the housing market continue to grow at a modest clip as we enter the new year.”
A month-long partial shutdown of the federal government, which has delayed data from the Commerce Department is, however, obscuring the economic picture.
The shutdown started on Dec. 22 as Trump demanded that Congress give him $5.7 billion this year to help build a wall on the country’s border with Mexico.
It has affected the Commerce Department, leading to the suspension of the publication of data compiled by its Bureau of Economic Analysis and Census Bureau, including new home sales, housing starts and building permits.
Data released before the shutdown had pointed to persistent weakness in the housing market, with economists estimating that housing would again be a drag on gross domestic product in the fourth quarter. Residential construction has subtracted from GDP growth since the first quarter of 2018.
Economists estimate that the impasse over the border wall was cutting off at least two-tenths of a percentage point from quarterly GDP growth a week. The Realtors group said the longest government shutdown in the country’s history had so far not had an impact on home sales, but warned this could change.
"Looking ahead to 2019, expect weaker existing-homes sales as the new year ushered in a government shutdown and worsening economic uncertainty," said Cheryl Young, senior economist at Trulia.
However, not everyone is as pessimistic about housing.
There’s no shortage of warning signs for the housing market, but Bank of America says investors shouldn’t fear the worst, Bloomberg reported.
“Don’t believe the narratives of a housing collapse,” economist Michelle Meyer wrote in a note to clients on Tuesday. Meyer said the challenges facing the sector “should only be a slight drag on growth” and that “the recent decline in mortgage rates is well timed, ahead of the spring selling season.”
Material from Bloomberg and Reuters has been used in this report.
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