A recent study by the National Association of Realtor (NAR) claims that home sales are continuing to decline across the U.S. This comes despite an overall boom in the broader economy, forcing experts to provide explanations for the incongruity.
The overarching reason for the decline in home sales appears to stem from a general imbalance of supply and demand. Millennials around the country are beginning to realize the American dream of owning a home. At the same time, the cost of labor associated with building homes has continued to increase, a phenomenon associated with both the recent crackdown in illegal immigration and the rising cost of building materials (partially the result of international tariffs). According to Aaron Terraza, a senior economist at Zillow, “[s]upply is woefully inadequate to meet demand, which is pushing prices ever higher contributing to mounting affordability woes.”
The difficulty cited by Terraza is additionally compounded by a recent increase in lending interest rates. The Federal Reserve has continued to raise interest rates, which has caused interest rates for ordinary home mortgages to increase. Mortgage rates have now returned to seven-year highs.
However, at least according to one economist, the increase in mortgage interest rates may bring more equilibrium in the housing market. Andres Carbacho-Burgos, a senior economist at Moody’s Analytics, claims that “[t]he upward trend in mortgage rates will pull affordability below a critical point and start to seriously erode demand and appreciation, at which point the reduce return on homes as an asset will prompt more homeowners to sell, breaking the right market fever.”
If Carbacho-Burgos’s prediction is true, we might begin to see more balance in the housing market, which could perhaps lead to more affordable pricing. But in the meantime, it looks like the imbalance between supply and demand will continue to force prices upwards for the foreseeable future.