Learn How To Start Investing In Real Estate
Learn How To Start Investing In Real Estate

Home Sales Constrained By Weather And High Prices

Written by JD Esajian

Despite a relatively encouraging 2013, the housing sector has struggled to maintain traction. Home sales on a national level appear to be stalling. Of particular concern, however, was a larger-than-expected decline in signed contracts. Experts familiar with the market have attributed the slowdown to higher prices and colder weather. Prospective homebuyers, locked in to buy an existing home in December, dropped below the original projection of 8.7 percent month to month. According to the National Association of Realtors (NAR), the decline is eerily similar to December 2012. The drop represents the slowest pace of signed contracts since October 2011, immediately after the homebuyer tax credit expired.

“Unusually disruptive weather across large stretches of the country in December forced people indoors and prevented some buyers from looking at homes or making offers,” said Lawrence Yun, chief economist for the Realtors in a release.

With January coming to an end, sales have not proceeded to get any better. Surprisingly, not even the South, which typically exhibits milder weather, saw an increase in sales.

“I spent all morning helping people get unstuck in front of my house,” said Ben Hirsh, a real estate agent in Atlanta; much of his staff has had to work from home this week, communicating through instant messages.

“We did have to reschedule several property inspections until next week. I can also see this delaying new inventory (which the neighborhood Buckhead desperately needs) by at least two weeks,” said Hirsh. “I would not be surprised if the storm had as much as a 15-20 percent impact on closed sales for the month of January, since many closings are clustered at the end of the month and will be rescheduled to next week.”

While the weather is more than likely a prime suspect for the delay in closings, it typically doesn’t extinguish them entirely. Thus, Realtors believe that the decline in contract signings is also the product of high prices as well.

“Home prices rising faster than income is also giving pause to some potential buyers, while at the same time a lack of inventory means insufficient choice,” said Yun.

Prices are still rising fast, up nearly 14 percent in November, according to the latest S&P/Case-Shiller Home Price Index. Complicating the already strenuous situation are weaker-than-expected job reports. According to the U.S. Bureau of Labor Statistics (BLS), we are currently experiencing the weakest job participation rate since 1978. The lack of employed adults acknowledges why so many are barred from home ownership and why others are unable to stay current on their mortgage.

“With median wage levels stagnant, many potential buyers do not have the resources necessary to participate in the homeownership market,” wrote Fitch Ratings’ Stefan Hilts, in a report released Thursday. “Without a strong employment base, it is difficult to find sustainable support for the rapid growth in home prices across much of the country.”

2013 was the beneficiary of investor activity, as most of the home price growth was on their behalf. First-time homebuyers have been an unusually small part of the housing recovery, and move-up buyers are still hampered by negative equity and poor wage growth. However, as the year continues, conditions are expected to get better. Spring, historically the strongest season for housing, is coming fast.

“This week, D.R. Horton and Pulte Homes have spoken optimistically about the upcoming spring selling season, so hopefully we’ll see a bounce back in buying,” wrote Peter Boockvar, an analyst with The Lindsey Group. “But I look forward to seeing the makeup of the buyers. Do they plan to live in the home or rent it out?”