It’s no secret that the pace of home sales has slowed during 2014. So what’s ahead for real estate and the housing market? If you really want to know, Irwin Kellner, Chief Economist for MarketWatch, has some advice. In his August 19th MarketWatch.com piece (Opinion: Don’t count on U.S. consumer to save economy) he eloquently and succinctly said, “If you are trying to discern where the economy is heading, look at the consumer.” And this applies directly to real estate too.
July housing figures from the National Association of Realtors® are due to be released this week; and although good news may be suggested, the numbers may be revealing of where the market is heading – and it may not be good. The NAR July 22nd (realtor.org) press release indicated that June’s existing home sales increased (compared to May 2014), however it stated that existing home sales were down 2.3 percent compared to the same time last year. Montgomery County single family home closings (sales), reported by the Greater Capital Association of Realtor® (gcaar.com) also dropped off in June (decreased 1.5 percent); and particularly telling is July’s decrease of 16.2 percent compared to the same time last year, as well as the 7.4 percent decrease year to date (compared to last year)!
The silver lining is that NAR reported that median home prices have increased in 71 percent of the “measured markets.” However, 27 percent of the measured markets showed a decline in median home prices from last year. Montgomery County median home sale prices are moderating (according to GCAAR stats): increases were about 3 percent during June and about 2 percent during July compared to the same periods last year.
Taking Irwin Kellner’s suggestion of “looking to the consumer,” let’s look at home buyer behavior trends; which may be understood through home absorption rate (the number of homes sold compared to the number of available listings during a given time period). It should be no surprise that the home absorption rate decreases compared to recent years due to the steady growth of home inventories and the reduced number of closings. Surprising is the rate of decrease in the absorption rate (calculated from MLS data) during June and July compared to the same periods last year (a decrease of 15 percent and 39 percent respectively).
Like the average consumer, it seems that home buyers may have become a bit skittish. Kellner points out that contrary to economist’s expectations, the August report of the Thomson Reuters/University of Michigan survey of consumer sentiment has dropped to a 10 month low. Additionally, he reported that although there has been some good news about employment, he argues that wages are not keeping up with inflation due to the nature of many newly created jobs, which are temp or part-time. Furthermore, he states that consumer savings are either low or “depleted.” Rounded out by the usual concern about job security, geopolitics, and the general economy: Kellner gives us a glimpse of today’s consumer.
As for real estate, the statistics suggest that the housing market may be at another crossroads. Homes sales have already dropped off during the busiest time of year, and it may be reasonable to expect that sales for the remaining year may also be subdued. The mediating factor will be home prices; which may eventually decline as home sellers try to be competitive with other listings, as well as entice home buyers to buy their homes.
Dan Krell is a Realtor® with RE/MAX All Pro in Rockville, MD. You can access more information at www.DanKrell.com.