Housing Stumbling in Slowest Season for U.S.: MortgagesPrashant Gopal
Just when the stumbling U.S. housing market could use a boost, it’s entering the slowest period of the year.
Online home searches, an indicator of demand, peak from March through August, according to Trulia, a real estate information firm that studied three years of its search activity. By September, as summer ends and children start school, searches fall below the annual average and decline further until December.
The seasonal slowdown means a turnaround in the housing market is unlikely for the rest of this year. After a robust 2013, new and existing home sales are down from a year ago even with inventories up and mortgage rates holding close to record lows. The pace of new-home purchases fell to the slowest in four months in July as rising prices and tight credit kept buyers at bay and forced economists to lower forecasts.
“The first half of the year has definitely been disappointing,” said Joel Kan, director of economic forecasting at the Mortgage Bankers Association. “There is upside potential but we don’t expect a sudden or sharp increase in home sales or originations in coming quarters.”
The MBA last month lowered its forecasts for purchase originations in the third quarter to $159 billion compared with $195 billion in the same period a year earlier. In January, the trade group had predicted the quarterly figure would reach $202 billion.
Rising values have made homes less affordable for buyers even as the gains are slowing. An inventory crunch for entry-level houses has worsened during the past year as discounted foreclosures became scarce and cash-paying investors snapped up affordable listings to convert to rentals.
Home prices, which have risen 29 percent since bottoming in 2012, increased 8.1 percent from June 2013, the smallest 12-month gain since January 2013, according to the S&P/Case-Shiller 20-city index.
Mortgage rates, which remain near record lows, haven’t provided buyers with enough savings to significantly boost sales. The 30-year fixed mortgage rate fell to 4.1 percent this week from 4.51 percent a year earlier.
“There’s only so much low mortgage rates can do,” said Keith Gumbinger, vice president of HSH.com, a Riverdale, New Jersey-based mortgage data firm. “Low mortgage rates are helpful. They’re attractive. But in their own way they’ve helped to foster higher home prices which have pushed additional folks to the sidelines.”
The housing market has had a shortage of first-time buyers, in part because millennials, saddled with unemployment and student debt, are postponing marriage, parenthood and homeownership.
Fannie Mae, the government-controlled mortgage firm, said its outlook for housing has deteriorated because of a loss of sales momentum at the end of the second quarter. Sales in 2014 will be lower than 2013, Fannie Mae economist Douglas Duncan wrote in the Aug. 18 note. The company had earlier predicted that housing would increasingly drive the U.S. economy in 2014 and 2015 -- a position it no longer holds.
“We have downgraded our outlook following the disappointing housing activity seen during the first half of the year,” Duncan wrote. “Additionally, on the demand side, there appears to be a conservatism among consumers and their willingness to take on big-ticket purchases, such as homes.”
While existing sales are down from a year ago, they’re at the long-term average relative to the population size, said Paul Diggle, U.S. property economist for Capital Economics Ltd.
Diggle said there are now 15.2 annual existing home sales per 1,000 people compared with the average dating back to 1968 of 15.1, he said. His bigger concern is that new home sales are at about half the long-run rate. Homebuilders have moved away from the entry-level market as credit tightened and are focusing on more expensive homes for a limited portion of buyers.
“What’s really lagging in the market is the level of new home sales and housing starts,” Diggle said.
An index of pending sales of existing homes gained 3.3 percent in July from the previous month, the National Association of Realtors said yesterday. The median projection in a Bloomberg survey of economists called for the index to advance 0.5 percent.
For the rest of the year, fewer buyers will be prowling for homes. Search activity has been more than 10 percent above the annual average from March to July, said Jed Kolko, San Francisco-based Trulia’s chief economist. In September, it slips to 5 percent below average and reaches a low of 25 percent under the base level in December.
While the seasonal slowdown begins in most of the country in September, it is steeper in southern states such as Florida and college towns like College Station in Texas and Iowa City in Iowa, Kolko said. Northeastern and western states do not see as much of a drop in activity in September.
The housing market also faces some of the same headwinds that held it back during the peak spring and summer months.
“The economic challenges that people faced earlier are still here,” Kolko said. “Affordability worsened as prices went up, the job market continues to recover slowly and young people are still much less likely to have jobs than before the recession.”
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