There are several signs indicating that a U.S. housing market crash is already here, but the bulls keep finding reasons to celebrate and live in denial that all’s well in this space. The National Association of Realtors (NAR), for instance, has just released a report that says home prices rose in 93 percent of the metro areas in the U.S. in the third quarter of 2019.
But NAR’s report was laced with caution as the body probably fears that the U.S. housing market is already in a state of decline.
NAR’s cautious view on the state of the U.S. housing market raises a red flag
The NAR pointed out that the median price of single-family homes increased in 166 of the 178 markets the association measures, up from 91 percent of the markets that showed growth in the second quarter. The median price of a single-family home in the U.S. came in at $280,200 during the quarter. That’s a 5.1 percent jump over the prior-year period’s median price of $266,500.
But this is where the good news for the U.S. housing market ends. The Commerce Department had reported last month that the median price of a new home was down 8.8 percent in September to $299,400 as compared to the prior-year period. The month-over-month decline was also severe at 7.9 percent.
Sales of both new homes and existing homes were also down in September, indicating that a U.S. housing market crash has already arrived. So, the third-quarter report from NAR does not reflect the true health of the U.S. housing market as things have already started going south. And the ironic thing to note is that NAR gave slight hints of a slowdown in its report.
NAR chief economist Lawrence Yun said:
Unfortunately, income and wages are not rising as fast and will make it difficult to buy once rates rise.
He was pointing out that low mortgage rates helped the U.S. housing market last quarter. But the lack of new homes for sale could knock the wind out of the market and price buyers out. Yun added:
In some markets, yes, we’re seeing construction companies ramp up plans to build more houses. But in an overall comparison of 2019 and 2018, fewer homes have been built. So hopefully home builders will expand their plans in order to better address the national inventory shortage.
Improved affordability cannot drive growth for long
The NAR report also pointed out that home affordability improved in the third quarter thanks to mortgage rates that are at historic lows. Average mortgage payments per month were down to 15.6 percent of the national median family income as compared to 17.4 percent in the year-ago period.
This means that an average family had to spend less money on their monthly mortgage, and this boosted the U.S. housing market during the quarter. What’s more, first-time homebuyers needed an annual income of $48,912 to qualify for a mortgage as compared to $50,976 in the second quarter. This is another proof that lower interest rates boosted the U.S. housing market.
But the problem is that low mortgage rates are not going to save the U.S. housing market for long. Sentiment among home buyers has declined for two consecutive months. Just 21 percent of Americans surveyed by Fannie Mae last month believe that it is a good time to buy a house. That’s down from the 28% Americans who held a similar belief in September.
The weak sentiment is not surprising as wage growth in the U.S. has hit a speed bump.
The probability of a recession still hangs heavy as an October poll of over 100 economists by Reuters revealed that there is a 35 percent chance of a recession in the next year even if there’s a trade deal between the U.S. and China.
In the end, it can be concluded that a combination of weak inventories, tepid wage growth, recessionary conditions, and the sliding sentiment is about to send the U.S. housing market into a tailspin despite a feel-good third-quarter report.