Potential Bad Year for Housing

Home Sales on Track for Worst Year Since 1995 – WSJ

I suspect the same issues with the economy caused by tariffs will also have an impact on housing. Just have to wait and see the impact of Trump tariffs on building materials and internal fixtures such as plumbing, toilets, doorknobs, etc. Much of which is made overseas.

Sales of existing homes in the U.S. are on track for the worst year since 1995—for the second year in a row.  

Persistently high home prices and elevated mortgage rates are keeping potential home buyers on the sidelines. Sales of previously owned homes in the first nine months of the year were lower than the same period last year, the National Association of Realtors said Wednesday.

Existing-home sales in September fell 1% from the prior month to a seasonally adjusted annual rate of 3.84 million, NAR said, the lowest monthly rate since October 2010. Economists surveyed by The Wall Street Journal had estimated a monthly decrease of 0.5%. 

September sales fell 3.5% from a year earlier. 

After a sluggish 2023, economists and real-estate executives widely expected activity to pick up in 2024. 

But mortgage rates have stayed higher throughout the year than some had forecast, including in recent weeks after the Federal Reserve’s interest-rate cut last month. That has kept home-buying affordability low. 

Home prices have continued to rise, as inventory in many parts of the country is still below normal historical levels. Climbing home insurance costs and a coming election are also adding to buyers’ uncertainty.

“Home sales are stuck at low levels,” said Lawrence Yun, NAR’s chief economist. “Americans are really not moving.” Yun said he forecasts that existing-home sales for 2024 as a whole could match or be slightly below last year’s level.

Expectations that the Fed would cut rates this year caused mortgage rates to drop to 6.08% in September, a two-year low. But the move came too late in the year to lure buyers, real-estate agents say. Many families prefer to purchase in the spring and move houses between school years. 

The reprieve in rates also didn’t last long. Mortgage rates have risen for three straight weeks to the highest level since August.

“That trickle up in rates, to right back where we were, just sucked the air out,” said Michael Read, owner of Bridgeway Mortgage & Real Estate Services in Morristown, N.J. 

Mortgage rates tend to loosely follow the yield on the 10-year Treasury note, which has been above 4%. But the spread between mortgage rates and the 10-year has widened to above historical norms in recent years, which can push up borrowing costs. 

Lenders often sell mortgages to investors. Those investors demand a bigger return, particularly when rate volatility is higher than normal, because mortgages are riskier than ultrasafe government bonds. U.S. existing-home sales Source: National Association of Realtors Notes: Seasonally adjusted at an annual rate; September 2024 is preliminary.

Uncertainty around the presidential election and “murkiness” around recent labor and inflation data haven’t helped, said Mike Fratantoni, chief economist at the Mortgage Bankers Association. 

Mortgage applications have fallen for four straight weeks as rates have risen. 

“It’s tough in this business,” said Alex Elezaj, chief strategy officer at United Wholesale Mortgage. “Once you think it’s going one way, it goes another.”

A drop in mortgage rates later this year or next would make home purchases more affordable, but that benefit could be offset if home prices continue to rise. In September, 42% of more than 1,000 people surveyed said they expect mortgage rates to fall in the next 12 months, but 39% said they expect home prices to rise over the same period, according to Fannie Mae.