Don’t Blame National Housing Softness on Government Shutdown
The housing market is showing signs of slowing down from its frenzied pace earlier this year. Just don’t blame the government shutdown—at least not yet.
- Bloomberg News
When the National Association of Realtors, for example, reports on existing home sales for September later this month, any softness in the housing data probably shouldn’t be attributed to the housing shutdown, which likely wasn’t on the minds of most Americans until it began on Oct. 1. (September data on new home construction, due Oct. 17, and on new home sales, due Oct. 24, won’t be released if the government is closed).
The pace of housing price and sales gains from earlier this year were already slowing before the government shutdown, largely due to four factors:
• Housing is seasonal, and sales slow down when the summer ends and the school year begins.
• Last year, some markets didn’t witness much of a seasonal slowdown because of strong investor demand. More recently, however, investors have retreated from many of the hardest-hit markets as prices have rebounded. In Phoenix, for example, the share of all-cash transactions fell to 33% of sales last month, down from 44% one year earlier, according to the Arizona Regional Multiple Listing Service. All-cash sales in Las Vegas fell to 47% last month, down from 55% one year earlier.
• Rising interest rates in May and June took a bite out of buyers’ purchasing power. Even though housing is still affordable by historic standards, some buyers likely had to readjust what they were looking to buy because their monthly payment increased sharply and quickly.
• Sellers have probably pushed prices increases too aggressively in some markets, while limited inventory has frustrated buyers, leading some to retreat to the sidelines. Some 27% of homes listed for sale in 19 major markets tracked by real-estate brokerage Redfin had their prices reduced in September. That was the highest level of price reduction since at least January 2010.
If any part of the country is stalled out by the political brinksmanship, it would be Washington, D.C. Home sales in the Washington metro area last month jumped by 12.1% from one year ago, and the number of contracts signed increased by 1.5%—the highest September total in eight years, according to data released Thursday byRealEstate Business Intelligence LLC. Half of all homes on the market in September sold in fewer than 17 days—the lowest median-days-on-the-market figure for September since 2005.
The data is a clear sign that the shutdown probably wasn’t weighing on the housing market in September. Of course, October and November could be a much different story—but figures for those months won’t be released for at least another month. Housing analyst Ivy Zelman, chief executive of Zelman & Associates, on Wednesday said she was reducing her forecast for new home orders by 6% in the third quarter and by 8% in the fourth quarter. She’s now expecting a 4% annual gain in orders during the third quarter and just 1% year-over-year growth in orders during the fourth quarter.
And if the government doesn’t find a way to pay its bills by failing to increase the debt ceiling, that could create much greater shocks to the financial system that raise borrowing costs for home buyers and dwarf any impact of the government shutdown.
Courtesy: Nick Timiraos, Wall St. Journal