HH The Real Estate View For A Second Lost Decade

The National Association of Realtors (NAR) reports today that sales of existing homes in the US were down 1.7% in August 2017 from July. At a seasonally-adjusted annual rate of 5.35 million, that’s the lowest pace for resales since July 2016. It is yet another data point reflecting the almost certain end of “reflation” in the economic sense.

The NAR suggests again this month that the lack of supply available for sale is the primary reason for this softening. I am inclined to agree – up to a point.

Lawrence Yun, NAR chief economist, says the slump in existing sales stretched into August despite what remains a solid level of demand for buying a home. “Steady employment gains, slowly rising incomes and lower mortgage rates generated sustained buyer interest all summer long, but unfortunately, not more home sales,” he said. “What’s ailing the housing market and continues to weigh on overall sales is the inadequate levels of available inventory and the upward pressure it’s putting on prices in several parts of the country. Sales have been unable to break out because there are simply not enough homes for sale.”

The flipside to “steady employment gains” and rising incomes, slowly or not, is seller confidence. We cannot ignore the timing of this big and growing shift in this part of the market. According to the NAR’s estimates, housing inventory began to decline in the summer of 2014 coincident to the “rising dollar’s” misunderstood appearance. It accelerated the next summer as the consequences of that monetary event became clear to everyone but economists. It hasn’t been the same since.

This durable change for inventory and seller behavior, of course, is quite consistent with the same kind of change in the trajectory of national incomes. Economists can keep calling it “steady employment growth” and it may be in some respects, but it is quite clear in the housing data that from the perspective of American workers the labor market is at best uncertain.

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