Existing US home sales saw an unusually large drop at the end of 2018. Some experts say that high mortgage rates are the main reason for this phenomenon.
An Unusual Month-to-Month Change in US Home Sales
US home sales fell 6.4% in December of 2018, a rather large decrease from the month before. These existing home sales include completed real estate transactions involving single-family homes, townhomes, condos, and coops. Compared to a year ago, US home sales are now down 10.3%.
The shifts in sales as reported by the National Association of Realtors are typically much lower month to month, whether it’s an increase or a decrease. As there was no significant change (like a government policy) to affect the housing market, this drop was reportedly high. And because the two months prior saw increases, it came unexpectedly and is leaving experts and real estate agents to debate the main cause.
Mortgage Rates to Blame?
2018 saw mortgage rates continually rise with the 30-year fixed-rate mortgage at an average of 4.64% in December. This was relatively high compared to the average 30-year rate in 2017 of 3.99%. While the rise in mortgage rates wasn’t sudden and they are still historically low, they’re the highest they have been in almost 10 years. Economists are pointing to these high rates as the main culprit for the dip in US home sales.
Lawrence Yun, NAR’s chief economist, said on the matter:
“The housing market is obviously very sensitive to mortgage rates. Softer sales in December reflected consumer search processes and contract signings activity in previous months when mortgage rates were higher than today.”
The rise in housing inventory of 3% compared to the prior year was forecast to boost US home sales. However, experts say that rising property prices in combination with the high mortgage rates outweighed the gain in inventory.
“This weakness is certainly due to the sharp home price gains along with the rise in mortgage rates,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
Others say that the opposite is true: Property prices are softening in many areas around the US. So even though homes are more affordable and mortgage rates are historically low, buyers are concerned about depreciation.
Moving Forward in 2019: What to Expect
Mortgage rates have actually begun to decrease at the beginning of 2019. So if they are the major cause, experts remain hopeful that spring US home sales will be back up to normal.
However, there comes the issue of the government shutdown. While it can’t be blamed for the drop in December, consumer confidence may continue to fall the longer the shutdown continues, causing uncertainty in the economy and housing market.
However, John Smaby, NAR president, said:
“The uncertainty of a shutdown has the potential to harm the market. Once the government is fully reopened, I am hopeful that housing transactions will increase.”
Learn More: The Impact of the Government Shutdown on the US Housing Market
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