US Pre-Owned Homes Market Crashes Amid Economic Slowdown, Paperwork Chaos

Sales of existing housing plummeted 10.5% in November as a consequence of a change in rules on how purchased deals should be processed, an overall economic slowdown, and last minute shopping for deals on new home mortgages just before the US Fed hiked rates.

Kristian Rouz – Sales of the existing US houses plummeted a massive 10.5% in November to their April levels, the decline is reported as the steepest in over five years, according to the National Association of Realtors’ (NAR) statement.

A potentially alarming sign for the broader US economy, the pre-owned housing slump is largely a consequence of new industry regulations implemented in October, rendering the process of finalizing home purchases lengthier.

Still, as the housing sector is one of the major drivers in the US economy, the downturn should not be neglected as a hint at a further US economic slowdown, particularly so after the US Federal Reserve hiked rates, stirring an increased concern of growth outlook into 2016.

Pre-owned home sales slumped an annualized 10.5% to 4.76 mln units sold during the 12 months ending 30 November in the steepest decline since July 2010. By late October, some 5.32 mln units were sold during the prior 12 months, NAR reported.

The housing sector has driven the US economy throughout most of 2015 as low interest rates and labor market improvements provided a substantial boost to the market. However, November’s pre-owned housing crash might be attributed to either the rush demand for new homes ahead of the Fed hike in borrowing costs, or the economic deceleration in the third quarter and its spillovers, or the changes in rules effective October.

New regulations aimed at streamlining paperwork on home purchases were implemented in October. However, property owners and management companies took their time to figure out the new guidelines on the formal side, thus taking longer to close most purchased deals. If so, a significant improvement in the pre-owned segment is due in December.

“November home sales without a doubt were heavily impacted by a new federal government rule regarding closing documents,” Lawrence Yun of NAR said. “Buying interest is there, it’s just that closings are not happening on a timely basis.”

New home sales, however, hardly suffered any consequences by the change in paperwork rules. The average price on a US home surpassed its 2007 highest in October, according to the Federal Housing Finance Agency (FHFA) data. Low interest rates and rising personal incomes have driven the market.

The housing sector has been among the hottest points of the US economy throughout the year. October home prices rose 0.5% from only a month earlier supported by robust demand.

Meanwhile, investment in real estate rose an annualized 8.2% in Q3, according to the US Department of Commerce. The feverish demand in the broader housing sector is partially explained by mortgage rates going up into the next year after the Fed hiked their base rates. That said, pre-owned homes might have indeed gone out of demand for a short while amidst last minute shopping for ultra-low mortgage rates on new premises.

However, the broader US economy is slowing, and the housing sector might be sharply reflecting the trend. The number of pre-owned units for sale dropped 3.3% in November from a month prior to 2.04 mln.

At the current pace of buying, these houses will go in 5.1 months, NAR calculated. As new listings appear, the insufficient demand might trigger a decline in prices, creating a massive discrepancy between the new and pre-owned homes prices.

Should the economy slow further, the US Fed is bound to halt any further tightening in borrowing costs, potentially supporting the credit-fueled areas, including the housing sector. Still, if the pre-owned prices go down, the market might see a massive rebound die to higher demand in December or early next year.