Economic Perspective: Are Slow Home Sales a Signal of the Future?

MARY WALDEN:

“Today’s program asks if slow home sales are a signal of the future. Mike, home sales have dipped in recent months despite falling mortgage interest rates. Does this trend forecast something bad for the economy?”

MIKE WALDEN:

“Well a little history of course, prior to the recession, prior to 2007 for about 10 years before that the housing market was just booming. In fact, some part that got us into the problems of the recession because people were taking out too much debt. So for those folks who thought that the housing market recovered to the levels of activity after the recession than it was before, they’ve been disappointed, but many economists thought that’s not going to happen.”

“So we are seeing a much more muted housing market level of activity in the last few years than we did before the Recession. Now that said, we have seen even more sluggishness in the housing market. Some people say that’s due to the fact that we did have rising mortgage rates last year even though they’ve come down somewhat. Also the 2017 Tax Act took away some major tax advantages of owning.”

“But a lot of economists say it’s really not coming from the buying side that’s slowing us. It’s actually coming from the supply side, that we’re not seeing the building in the housing market of new structures, new apartments, new single family homes. We’re just not seeing the level of building we had prior to the Recession, and I think some of that has to do with a lot of those firms that were clobbered by the Recession really have not recovered.”

“Still most economists are not pessimistic about the housing market. They don’t see a big dropoff. They do think the recent softness is temporary, and especially now that mortgage rates have gone back down we should see a slight pickup in home sales in coming months.”

Mike Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.