Housing Slump Within A Slump

July 2018 was another disappointing month in the housing market. Sales of existing homes, according to the National Association of Realtors (NAR), declined again last month. At a seasonally-adjusted annual rate of 5.34 million, it was the lowest level of resales in two years.

Apart from the distortions last year in the aftermath of the big Gulf Coast storms, the housing market has been slumping since early last year. As has become typical, the NAR blames a lack of available-for-sale inventory for holding back the market. The economy, they say, is booming with the labor market each and every month some variation of “strong” and “robust”.

Yet, for reasons they can’t explain there remains this nationwide sellers strike. Plenty of buyers, supposedly, but where are the sellers?

Over the past few months, anyway, that has been less of a problem than before. While housing inventory isn’t growing, it isn’t contracting like it had been going back to 2015. In other words, there is less restraint from the seller side especially recently.

Then it has to be mortgage rates, at least in the trade group’s attempt at an explanation.

In addition to the steady climb in home prices over the past year, it’s evident that the quick run-up in mortgage rates earlier this spring has had somewhat of a cooling effect on home sales

It sounds plausible enough. Mortgage rates are up this year. The 30-year average fixed rate mortgage had been as low as 3.4% in later 2016 and 3.9% as recently as last December. In the latest week, for August 16, the rate is now 4.53%.

Mortgage rates, however, are a convenient excuse for big economic imbalances. Thirteen years ago, those were a weak economy and a massive credit-driven bubble. Today, it’s no economic growth but with constant attention focused on the faulty unemployment rate. In both cases, home prices were way out of balance given economic fundamentals, though for very different reasons.