NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist
INDICATOR: September Existing Home Sales
KEY DATA: Sales: -3.0%; 1-Family: -3.6%; Condos: +1.8%
IN A NUTSHELL: “The housing market just cannot get any traction despite record low mortgage rates.”
WHAT IT MEANS: I was nice to see that housing starts improved but for the market to really be solid, the existing home segment must improve. This is where most of the action takes place and right now it is largely treading water. Existing home sales eased back in September, according to the National Association of Realtors. A rise in condo and co-op purchases couldn’t offset a decline in single-family sales. The only region where demand improved was the Northeast. Contract failures, which are usually due to an inability to secure a mortgage, remained high. As long as distressed homes affect appraisals and credit standards remain tight, sales are not going to gain much traction. Housing prices were down over the years despite a decline in the share of homes sold that were distressed.
MARKETS AND FED POLICY IMPLICATIONS: There are so many hurdles facing the housing market that it is hard to see when conditions will return to “normal”. In addition to appraisal and credit issues, lots of households don’t even have the equity to make a move. With job growth weak, mobility is limited and that too slows the market. Still, the mortgage rate is so low and affordability so high that you would think conditions should be improving a little. It just doesn’t look that way as the September sales pace is pretty much what we have seen all year. Sometimes it has been higher, other times lower but it seems that roughly a 5.0 million unit annualized sales pace is where demand seems to wander around. In September, the pace was 4.91 million. So once again it needs to be pointed out that the economy will have to make do without housing pushing things upward. That means the slow, steady, grinding recovery is likely to stay that way for quite a while.
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