They say that October is the scariest month of the year, and if we look at housing market data, they are right. Several housing data reports came out last week and point to a sickly market.
Existing Home Sales Fall
Sales of previously owned homes or existing home sales fell 2.2% month over month in September. Experts were forecasting a modest drop of 0.7%, so the actuals for September were much below expectations. In unit terms, the seasonally adjusted annual rate of 5.50 million for August fell to 5.35 million in September. Existing home sales increased for two straight months in July and August, which offered hope that 2019’s slowdown in the housing market was turning around. But September drop points breaks that hope balloon.
The median sales price for an existing home in September was $272,100, up 5.9% from a year earlier, the fastest pace of price appreciation since January 2018. The supply of homes on the market slid 2.7% from a year ago, according to NAR. Unsold inventory is at a 4.1-month amount at the current sales pace, up from 4.0 months in August and down from the 4.4-month figure recorded in September 2018.
New Home Sale Fall Too
There was more bad news from the new home sold data. Sales of new homes fell 0.7% month over month in September. August’s huge rise of 7.1% month over month was revised lowered to 6.2%. In unit terms, seasonally adjusted annual rate for new homes was 701,000 for September. Year over year for September sales roses, but the pace of the increase declined, signaling the slowdown in 2019 is accelerating.
The median new home price tumbled 8.8% from a year earlier to $299,400, which is the lowest since February 2017. The supply of homes at the current sales rate held at 5.5 months, unchanged from the prior period.
Will Lower Mortgage Rates Help Denver Homebuyers?
The Federal Reserve cut interest rates this week, another quarter-point to a range of 1.5% to 1.75%. It was a contention vote by the Fed as well. The two policymakers who voted against this year’s previous cuts dissented once again. The New York Times, in this article, had these to say on the interest cuts:
Interest rates still matter for housing. The Fed’s first two rate cuts this year helped stabilize the housing market, which had been heading for a major slump. On Wednesday, the Commerce Department said that construction added to gross domestic product in the third quarter after six quarters of contraction. And lower rates could give another jolt to a refinancing boom that has injected billions of dollars into the economy in recent months.
But few economists expect the housing market to take off in response to this week’s rate cut, because rates aren’t what was holding back housing in the first place.New York Times
The Times and economists point to several issues factors hurting home buyers, which will most likely lead to the Denver housing bubble bursting. The first factor is it much harder to get a mortgage these days then it was before the financial crisis. The Times provided a hand chart that shows the difficulty in borrowing for mortgage since the financial crisis almost a decade ago. Another hard stat is the home buyer of today now has an average credit score of 741 compared with 700 pre-financial crisis.
The second factor is it is also hard to buy a home because housing prices have outpaced wages, especially here in the metro Denver area. The average price for a single-family home was $535,032 for September. The average yearly salary is $51,958. It would take almost 10 years to buy a house outright with wages assuming you dedicated 100% to home buying, which you can’t. If the unemployment numbers for the metro Denver area start to rise you can bet home prices will begin to fall given that they are already so out of line with each other. We want the housing bubble to deflate, but not at the cost of working people’s jobs and livelihoods.
The factor is rates are already near record lows. One chilling new item was last week mortgage applications plunged 11.9% from one week earlier. This development is troubling because if the marginal mortgage applicant is this sensitive to rates, at historic lows, what happens if we see an upturn in growth and rates start to rise to more normal levels?
What Will Happen With The Metro Denver Housing Market
We are anticipating the release of the November DMAR report to see what happened to inventory and prices for Denver area houses during the month September. The housing market usually weakens into the winter season, and we wouldn’t be surprised to see a decline month over month of between 1% and 2%. Stay warm tonight and hope all our readers get lots of candy this Halloween.