Housing sales, for both new and existing home sales, have fallen this past year (November 2017 to October 2018 – November 2018 and December 2018 data was not yet reported, due to the shutdown). New home sales are down almost 20% from a year ago, while existing home sales are down over 10%. In addition, the annual national housing price increase was only 1.2%, which is the lowest number since the recovery to the housing crisis began seven years ago.
While these are national averages, and real estate is a local phenomenon (location, location, location), the trend is unmistakable. What we are seeing is a nation-wide slowdown in sales and real estate prices. The question is, will this trend continue, or is this a consolidation phase before another rise in both?
To answer this question, we need to look at the economy and other factors that could influence the direction real estate sales and prices could go. The economy is a major factor and influence on how people make decisions regarding what is usually the largest single purchase in their lives, their home. Economists and business leaders a projecting a recession in 2019 or 2020. This will affect many people, and could force some to sell their homes, due to a loss of income, and could lead to a rise in foreclosures.
But we also need to think about the other effect of a recession – it will force the Federal Reserve to reduce interest rates to revive the economy, which will drive down mortgage interest rates, making housing more affordable. In fact, interest rates are one of the possible explanations for the slowdown in housing sales and prices. The typical 30-year fixed mortgage rate rose to nearly 5% last year, which could have put prices out of reach for many potential buyers. Think of what a potential rate of 4% or below could do for real estate sales – it could present another opportunity for a housing boom.
Note: “In the tank” is a phrase that originally meant that something or someone took a nosedive into a swimming pool, “tank” being the word that meant (in the 1800s, when the phrase originated) what we now call a swimming pool. Not many people know that, so the graphic I used for this article is a military tank, which most people now associate with the word “tank.”