There’s a lot of economic data released to the public on Tuesday that people should parse through. For the most part, it seems the markets reacted positively to a number of developments, the most important of which is the Fed’s monthly meeting notes. The Central Bank said it plans to ease stimulus programs sometime in November, citing a few different reasons. One major reason that wasn’t mentioned in the meeting but still is important, is the state U.S. housing market. New data released is showing that housing demand is cooling down slightly, although it still remains quite hectic.
According to the National Association of Realtors, last month’s home sales ended up declining. In August, total house sales dropped by 2% compared to July, the largest single-month dip seen in almost six months. Compared to August of 2020, last month was still down around 1.5% as well.
At the current rate, annualized home sales will come in at an average rate of 5.88 million units. Areas that saw the biggest decline in demand were in the American South, where sales fell by 3.0%. That’s slightly worse than what most analysts were forecasting.
Home sales across the country skyrocketed in the midst of the pandemic. This influx in demand extended the normally busy spring season into Summer and Fall. Even with lockdowns being lifted in many cases, Americas had remained eager to buy new homes and add more space for remote working.
It also helped that the Federal Reserve set interest rates so low to help stimulate the economy, something which also translated into incredibly cheap mortgage rates. This, in turn, encouraged more Americans than ever to start borrowing money. Some people have said that the current housing market is the most bullish one since 2007; whether that’s a good thing or not is debatable.
However, with more vaccines hitting the market, people returning to work, and children returning to school, it seems that demand for new homes is finally starting to die down. Another possible reason is that house prices have gone up so much over the past months, it’s discouraged many potential buyers from actually getting a home now.
“The recent moderation in existing home sales reflects some easing of the buying frenzy that carried over into early 2021. The frantic race for space sent prices soaring. We continue to expect the housing market to move back into balance over the next couple of years,” said Mark Vitner, senior economist at Wells Fargo.
There is a chance that, with the Fed having more or less confirmed an interest rate hike likely next year, that some home buyers might take the chance right now to buy while rates are still as cheap as they are. However, there’s also a degree of buyer exhaustion right now. The only buyers likely to be encouraged to get a mortgage right now if they haven’t already are those that were previously on the fence. However, there are more reasons why housing demand should stabilize or fall in the coming months rather than go up.
