U.S. Housing Gets Hit with a Double Whammy
Life + Money

U.S. Housing Gets Hit with a Double Whammy


A pair of downbeat housing reports this week offer a slightly darker outlook on the nation’s housing market. Americans may be wondering if home values are in jeopardy or whether to hold off on buying or selling a house.

The number of new home sales in September dropped 15.2 percent from August to an annual rate of 468,000 units, sharply lower than estimates and the lowest level since November 2014. Pending sales of previously owned homes also fell 2.3 percent in September, surprising economists who expected a slight increase.

“In short, disappointing numbers. Taken literally, they suggest that home sales have stopped improving,” Jim O'Sullivan, chief U.S. economist of High Frequency Economics, wrote. “The new home sales data earlier this week were even weaker.”

Related: A New Housing Bubble? Some Buyers Are Camping Out for Lots

But O’Sullivan attributes the weakening to volatility rather than any underlying issues, echoing many other economists.

Don’t sound the alarm

“It’s tough to go on month-to-month data. Anything can happen in a given month like weather,” says Jim Gaines, chief economist at the Texas A&M University’s Real Estate Center. “Every month, they change the previous month’s estimate, so you can’t get too carried away. The pattern over the last several months shows that the housing sector is doing well.”

The report on new home sales comes with a large margin of error, says Chris Christopher, director of U.S. macro and global economics at IHS Global Insight. To smooth out the volatility, it’s better to look at the three-month moving average which shows that sales are about 15 percent higher than the same period a year ago.

A few bright spots

Christopher further noted that the week offered some positive housing news. The widely watched Standard & Poor’s/Case-Shiller 20-city home price index showed that national home prices rose 4.7 percent in August year over year. That year-over-year gain is slightly lower than the index’s nearly 40-year average of 5.04 percent.

Related: Here’s Why Home Prices Are Climbing So Quickly

“That’s an indicator of the housing market gaining traction,” he says.

More work to be done

The homeownership rate in the U.S. also ticked up for the first time in two years, to 63.7 percent in the third quarter to 63.4 percent in the second quarter. Still, the rate remains below last year’s level.

Gaines also added that new home sales have moderated around 500,000 annual units, which is well below the 800,000- to 900,000-unit level that the economy needs.

“While the trend has been positive, the upward trend is still at a low level,” Gaines says. “It’s not getting back to the level it needs to be a robust stimulus for the economy.”