The Softening Housing Market
It’s hard to imagine, but it does appear that the housing market is finally softening. The days of multiple offers seem to have faded and there is a slowdown in the buying habits of real estate investors. Sales figures have varied depending on the area, but on a national basis there does appear to be more hesitance from buyers to purchase housing. In addition, the average listing time has gone up despite low interest rates.
A recent article on CNBC.com outlined the latest housing statistics.
Pending home sales fell 2.5% in July month to month and were 0.3% lower compared with July 2018, according to the National Association of Realtors. Pending sales are signed contracts to buy existing homes, so it is a future indicator of closed sales for August and September.
This weaker-than-expected result came after two months of sales gains and may be a sign of just how sensitive today’s borrowers are to even the smallest moves in mortgage rates.
The average rate on the 30-year fixed fell from around 4.2% at the start of May to around 3.8% at the start of July, according to Mortgage News.
Source: August 29, 2019, CNBC.com article by Diana Olick
Additionally, foreign investors (particularly Chinese) seem more hesitant to invest in United States real estate given current uncertainties on trade. Particularly in areas that have long been considered desirable by foreign investors (ex. Silicon Valley). It is estimated that interest in buying by international investors has gone down by a third.
The real estate market is important because this is a driver of all economic growth. A soft real estate market is not only a symptom of a softer economy but also contributes to a reduction in overall economic activity. This is yet another sign the economy is slowing and recession fears are not unfounded.
We continue to believe the odds of a recession stand at about 40% in 2020. It all comes down to two issues: China trade and interest-rate policy. We believe both will be resolved although the headlines will suggest differently for a while. We are investing on the assumption that a slower economy is headed our way.
If you have any questions about this information, please let us know. Always here to help.