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Economist: Spring home sales will be the big test

Existing-home sales clocked in at a disappointing annual pace of 4.9 million units in December, the slowest pace in three years, according to the National Association of Realtors. NAR Chief Economist Lawrence Yun discussed the numbers and why he believes that the spring homebuying season will provide the true test of the health and direction of the housing market in 2019.

Were you disappointed in the December sales numbers?

lawyunIt is a large month-to-month decline. Generally, one does not see this type of big change. It occurred, but we have to keep in mind that the December closing activity is not reflecting recent lower mortgage rates. So, I do anticipate some revival in the upcoming months, but it is a surprise in December with how much it declined.

When was the last time existing-home sales dipped below the 5 million annual threshold?

The last time it went below 5 million would have been November 2015, when it was 4.78 million.

A highest-cost region, the West, had the greatest annual decline in sales. Is that related to the cost of the homes?

Oh yes, it is the affordability. The prices are rising just too fast out in the West.  

You did note that there has been a healthy uptick in inventories nationwide and mortgage rates have since declined. Do you expect the spring to be pretty good for sales?

It will be a very important test of the market. We know that the economy is creating jobs. The inventory shortage was a critical problem in 2018, but now with more inventory showing up, it should imply better consumer choices and confidence for the consumers about homebuying. But one negative is some concerns about the direction of the economy. Consumer confidence has been weakening, and [the entire market] overall [has] affordability challenges. There is a lack of available homes for sale on the lower-end properties; so, a starter home, we need more inventory of the moderately priced homes. 

Just about the government shutdown, are you worried about it affecting home sales as it keeps going?

Yes, I am worried. In the past, when the shutdown ended, it resulted in an uplift in sales. Any delays [in closings] came in a little later. It was a delay, not a cancellation. But there could be some cancellations if the shutdown is prolonged. The other part is just the consumer confidence. Some consumers just may view the government shutdown as the wrong direction for the economy ahead, and they will be less confident about buying homes. So, I am concerned that the longer the shutdown, that we will begin to feel some measurable impact.

So it would be more about perception than, say, your ability to get a loan?

Most mortgages are open for business, even though staffing at the U.S. Department of Housing and Urban Development, which process FHA [Federal Housing Administration] loans, have furloughed [the majority of their staff]. There could be some bottleneck delays in some endorsements. Even though it technically is open for business, some mortgages could be delayed.

For rural housing mortgages —people living in rural areas who want to utilize the U.S. Department of Agriculture zero-downpayment home mortgage — that is shut down. For those who want to use that, that is simply not available. There are some actual impacts related to the government shutdown in terms of mortgage availability. But, I think, the other picture that people miss out on is the damage to consumer confidence for people who have access to mortgage, but they just do not want to commit with the perception of uncertainty and chaos. 


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