November Sales of Existing Homes Plummets
By Burt Carey
Sales of existing homes plummeted 10.5 percent in November, the largest such decline since July 2010, according to the National Association of Realtors.
The decrease could be an ominous signal that the U.S. economy is slowing as the seasonally adjusted annual rate of sales is now at 4.76 million homes, down from October’s estimated annual rate of 5.32 million. Every region of the country experienced declines of existing home sales in November.
The NAR reported that some of the decrease could be an anomaly related to a recent change in the length of time it takes mortgage companies to close loans. The Know Before You Owe initiative, which went into effect this fall, is causing longer closing times.
The NAR’s Realtors Confidence Index suggests 47 percent of respondents reported experiencing longer closing times in November compared to a year ago; 37 percent reported longer closing times in October.
“It’s possible the longer timeframes pushed a latter portion of would-be November transactions into December,” said Lawrence Yun, NAR’s chief economist. “As long as closing timeframes don’t rise even further, it’s likely more sales will register to this month’s total, and November’s large dip will be more of an outlier.”
Despite the wait times, the median price of existing homes continues to climb although the amount of time it takes to sell existing home inventory is increasing. The median price for all housing types in November was $220,300, according to NAR, which is 6.3 percent higher than in November 2014 ($207,200). There were 2.04 million existing homes for sale at the end of November, a 1.9 percent decline from a year earlier. The amount of time to sell that inventory has increased to 5.1 months, up from 4.8 months in October.
“Sparse inventory and affordability issues continue to impede a large pool of buyers’ ability to buy, which is holding back sales,” Yun said. “However, signed contracts have remained mostly steady in recent months, and properties sold faster in November. Therefore it’s highly possible the stark sales decline wasn’t because of sudden, withering demand.”
First-time buyers are still relatively absent from the market. First-time buyers in November made up just 30 percent of sales, a sluggish performance NAR chalks up to affordability. In its quarterly Housing Opportunities and Market Experience survey, the NAR found that current renters who are 34 years of age or younger overwhelmingly want to own a home but simply can’t afford it.
“The Federal Reserve’s decision this month to raise short-term rates is the first of many increases over the next couple of years,” says Yun. “Although this first move will likely have minimal impact on mortgage rates, additional hikes will push borrowing costs to around 4.5 percent by the end of next year. With home prices expected to continue rising, wages and new home construction need to start increasing substantially to preserve affordability.”