The National Association of Realtors Chief Economist Dr. Lawrence Yun reported 5.09 million home sales in 2013. December was widely reported as up by the media, but only 1% over a November that was revised down. Year over Year December was down 0.6%. The second consecutive monthly decline.
To say the year in housing ended with a whimper would be an understatement.
But wait a minute, isn't the job market improving with only a 6.7% unemployment rate? If more people are working doesn't that translate into more people buying homes? The unemployment rate is as bogus as the inflation rate or we would be selling more homes and ground beef.
As a member of the National Association of Realtors I understand the desire to put a positive face on housing numbers to benefit members, however, to say the reason for the slowdown is due to a lack of inventory and bad weather is a stretch.
The weather argument falls flat because closings typically occur thirty to forty five days following a purchase contract. Bad weather in October and November didn't impact the number of closings in December.
I take the opposite view of the association, sales are down and slowing not due to a lack of inventory but due to a lack of demand.
We are heading towards an inventory shortage eventually because new construction has never recovered. New home construction remains at half the rate of pre-recession levels, and the recession ended four and a half years ago.
It is noteworthy that the number of mortgage applications were down by 66% in 2013. The reasons are twofold, rising interest rates killed the refinance market, and cash sales were at historic levels. Primarily from major investors entering the own to rent market gobbling up foreclosures. That too is slowing to a crawl.
If interest rates continue to rise into the five percent range the inventory of homes for sale will be hurt because anyone who doesn't have to sell won't trade a mortgage at or below 3% for a 5% mortgage.
Regardless the shortage of inventory you must still have demand, and demand comes from family formation and job growth. With 18 to 34 year olds accounting for 46% of all unemployed Americans most of the family formations are those based on love not money. Does love count toward a loan approval?
Obamacare casualties continue to mount, but the toll from employers cutting hours to part time, and laying off employees to avoid the mandates has harmed demand. When tens of millions with employer paid policies start getting cancelled and have their premiums increased, look out housing.