- Mike Ochs
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Housing Sales Plummet, Set Off New Economic Jitters
Are housing prices about to experience a double dip? Existing home sales fell 27 percent in July to the lowest level reported since 1995. The plunge occurred even though mortgage rates are at their lowest levels in decades and houses in most regions are priced to sell. July sales fell to a seasonally adjusted annual rate of 3.83 million, according to the National Association of Realtors (NAR). This was the largest monthly drop dating back to 1968, and the numbers raise questions about the overall health of the economy.
“The housing market is undermining the already faltering wider economic recovery,” said Paul Dales, U.S. economist with Capital Economics. “With the increasingly inevitable double-dip in prices yet to come, things could yet get a lot worse.” The weakest sales occurred in the lower- to mid-range prices. In the Midwest, for example, homes priced between $100,000 and $250,000, plummeted by approximately 47 percent.
Although sales in spring were strong – spurred by a tax credit for first-time homebuyers that expired at the end of April – the inventory of unsold homes soared to nearly four million nationally at the end of July. At the current pace of sales, that’s a 12.5-month supply and the highest level seen in more than 10 years. A healthy level is considered to be six months.
“A pause period for home sales is likely to last through September,” Lawrence Yun, the NAR’s chief economist, said. “However, given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs.”
“A sustained upturn (in the housing market) will depend on an improvement in the jobs market, which at the moment is slowing down rather than gathering pace,” said Nigel Gault, an economist at IHS Global Insight.