U.S. Existing Home Sales Plunge in November
National Association of Realtors attributes 10.5% drop to new federal rules for mortgage forms
From The Wall Street Journal, by Harriet Torry, Dec. 22, 2015:
WASHINGTON—Sales of previously owned homes plummeted in November as delays caused by new mortgage red-tape and a dwindling supply of residences on the market pushed down sales to a level not seen since April 2014.
Existing-home sales fell 10.5% last month to a seasonally adjusted annualized rate of 4.76 million, the National Association of Realtors said Tuesday, well below the 5.32 million economists expected. The double-digit decline was the sharpest since July 2010, when sales took a hit from the expiration of a home-buyer tax credit.
The NAR blamed the lion’s share of the November decline on closing delays caused by new federal rules implemented by the Consumer Financial Protection Bureau in October, although it said rising home prices and tight inventory continued to challenge potential buyers.
The changes, prompted by the 2010 Dodd-Frank financial law, are meant to help consumers better understand the terms of their mortgages before they sign and prevent what occurred during the housing boom when some borrowers agreed to loan terms they later found they didn’t understand. As the industry adjusts, the changes have added about five days to the length of time to close home sales, NAR chief economist Lawrence Yun told reporters. Closings took an average of 40.5 days in November, according to NAR.
Several realtors said pressure on housing inventories is also driving the sales slump. The number of existing homes for sale fell more than 3% on the month in November and was down nearly 2% on the year.
“I think we’re still seeing a fair amount of tightness in active selling markets,” said Zillow Chief Economist Svenja Gudell, adding first-time buyers trying to enter the market at a lower price point are facing particular scarcity. Housing prices have also climbed faster than wages in many markets, making it more difficult for first-time buyers to save for a down payment.
In November, the national median home price rose to $220,300, the 45th consecutive month of gains year over year, and 6.3% higher than the same month last year.
Despite November’s decline, NAR said home sales are on track for their best year since the current economic expansion began. Economists said the underlying sales rate appears steady, despite the rule changes causing turbulence last month.
“To the extent the new regulations delayed closings in November and pushed them back into December, there should be a sizable payback in the data on December existing home sales and going forward these regulations should not have an impact on sales,” Richard Moody of Regions Financial Corp. said in a note to clients.
Gennadiy Goldberg of TD Securities took comfort from the fact that the decline in existing sales wasn’t foreshadowed by a fall in pending sales, “suggesting that the stark November weakness may be short-lived.”
In a widely anticipated move last week, the Federal Reserve increased short-term interest rates for the first time in nearly a decade. Mortgage rates could eventually rise as a result but are expected to stay historically low for a while.
The property market doesn’t appear spooked by the prospect of higher interest rates.Stephen Phillips, president of Berkshire Hathaway HomeServices, said he doesn’t expect the rate environment to be a significant headwind in 2016.