Categories Analysis, Markets

Affordability takes a beating as home prices, mortgage rate zoom

A key area of the economy that remained subdued this year is the housing sector, even while overall growth gathered momentum. The primary factors that dissuade prospective buyers from owning a house are the rising prices and  interest rates. Affordability is further squeezed by high mortgage costs, while the unfavorable inventory situation adds to the overall housing slump.

However, data published by the National Association of Realtors on Thursday came as a relief to the ailing sector, revealing an unexpected but small increase in the number of contracts signed for buying existing homes. The agreements to purchase previously owned homes edged up 0.5% sequentially last month, defying expectations for a modest decline.

Meanwhile, the number of such contracts dropped 1% compared to September 2017 –  marking the ninth consecutive fall – which indicates the positive trend might not be sustained in the coming months.

Latest data reveal an unexpected but small increase in the number of contracts signed for buying existing homes

A region-wise break-up of last month’s numbers shows a mixed trend, with Northeast registering a 0.4% decline and Midwest witnessing a 1.2% increase. Year-over-year, the two key markets recorded declines of a 2.7% and 1.1% respectively. With a 1.4% decrease, South registered the biggest monthly fall. West, where homes are the most expensive, jumped 4.5% sequentially but dropped 7.4% compared to last year.

There have been signs of a recovery on the supply front since the beginning of the second half, but by that time affordability came under more pressure. The price hike brings cheer only to the realtors and those who have already bought residential units at reasonable prices. However, some surveys suggest that prices have started cooling in several US cities, in response to the downbeat buyer sentiment.

Economy gathers steam; Q2 GDP growth is quickest since 2014

Meanwhile, experts dismiss the concerns that a further tightening of the market would lead to a bubble-like situation akin to the sub-prime crisis more than a decade ago, citing the underlying stability of the sector and the strong economy.

Earlier, statistics published by the Census Department showed that new home sales dropped 5.5% in September, compared to August, and 13% year-over-year. The number of persons filing for mortgage applications was unchanged from September 2017.

 

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