Why Are Home Sales Lagging?

The US housing market failed to meet its potential again in July, underperforming by nearly 6 percent according to some models. That’s more than 350,000 home sales that didn’t happen.

Lagging Homes Sales in a Strong Economy

Considering that America’s economy is booming, that shortfall in home sales seems paradoxical to say the least. 2018 provided the strongest economic growth since 2014. The gross domestic product grew at 4.1 percent in the second quarter, and the country has been adding new jobs every month for 94 straight months. Unemployment is at its lowest rate since 2000.

Moreover, the housing market itself is strong. The median sale price of a US home is $230,000. That’s the highest it’s been since 2007, and on average, houses for sale sell in only 54 days. So why is the housing market underperforming?

Reluctance to Offer Existing Houses for Home Sales

The problem appears to be rising mortgage rates. The available evidence indicates that these don’t discourage prospective buyers, but they do discourage the owners of existing homes from offering those homes for sale. Selling becomes a less attractive option when a person will have to pay more in interest each month just to borrow the same amount from the bank and worries that he or she may not be able to find a suitable replacement home to buy at all. And existing homes account for about 90 percent of American home sales. In other words, the underperformance of the housing market is due to a shortage of existing homes for sale.The solution is to build more new homes for sale.

The answer to boosting home sales is to build new houses for sale.

Homebuilders don’t have to worry about mortgages, nor need they fret over the possibility that they won’t find a suitable new place to live. While the market shortage of existing homes for sale continues, they would do well to increase new home construction. It would be an especially good idea to increase the construction of new entry-level homes to meet the needs of potential first-time buyers who are likely to remain interested in home sales even in the face of rate increases.