THE HOUSING BLUES WON´T BE OVER SOON / THE WALL STREET JOURNAL

The Housing Blues Won’t Be Over Soon

The decline in mortgage rates helps, but won’t be enough to get housing’s recovery going again

By Justin Lahart


Sales of previously owned homes were unexpectedly weak last month. Photo: Charles Krupa/Associated Press 


Lower interest rates are giving would-be home buyers more of a reason to go ahead and get that house. Everything else is giving them less of a reason to pull the trigger, though.

Sales of previously owned homes were unexpectedly weak last month. The National Association of Realtors reported that an annualized 4.99 million homes were sold in December, down 6.4% from November, marking the lowest sales and sharpest drop in over three years. Economists had expected a 1.3% decline.


While a bounce can’t be ruled out, the housing recovery’s best days probably are behind it. The decline in sales came despite an improved interest-rate backdrop. The average rate on a 30-year fixed mortgage was 4.55% at the end of December, according to Freddie Mac, after spiking to 4.94% in early November.

While some forecasters evidently thought the decline in rates would help bolster home sales, it is important to remember that lower rates didn’t appear out of the blue. Rather, the rate decline reflected rising worries about the strength of the U.S. economy and an associated drop in the stock market.

Those kinds of things make a lot of people think twice before a major purchase.

It also is important to note that existing-home sales are based on closings, so almost everybody who bought a home in December went looking for it, and into contract, earlier in the fall—when mortgage rates were higher.

Even so, a January bounce may not happen. There are about 800,000 federal employees who are either furloughed or working without pay as a result of the government shutdown. Buying a home can’t be top of mind for many of them. Ditto for government contractors who have had their finances pinched.

More significantly for the housing market’s future are other factors: Persistent price increases have put homes out of reach for many people, while changes in the tax law have reduced the advantages of Homeownership over renting. The share of households who believe it is a good time to buy a house has fallen to the lowest level since 2008, according to the University of Michigan’s survey of consumers.

That doesn’t mean the end is nigh. Assuming the shutdown gets resolved within the next few weeks and assuming the economy manages to weather through it, the drop in rates should start to matter more, and home sales should respond. That would be a relief, but it probably won’t herald a new dawn.