US Home Sales: How Far Can They Go?

Normally, as the end of the year approaches, housing activity in the US slows down. It’s seasonally normal for new house completions, sales, and even price drops. There are several reasons for it, from people focusing more on the holidays, to the ground freezing in some places, making it difficult if not impossible to build.

Additionally, with the Fed tapering their purchases of Mortgage-Backed Securities, and the expectation of three rate hikes next year, the cost of credit has been rising. That said, there are many reasons leading analysts to expect the housing market to slow down.

What’s been going on

However, the latest survey by Redfin shows that far from waning, housing activity in the US has actually increased.

November was the 16th consecutive month with double-digit higher home prices on average across the US. This is despite the average 30-year fixed-rate mortgage (the benchmark for borrowing costs to buy a home) increasing. And it has continued to increase since the low-point at the middle of the year.

Could it be that home buyers are looking to get into the market before rates go up next year? That would provide an unusual amount of monetary policy savvy for homebuyers.

In addition, most people don’t have all that much flexibility in terms of the timing of buying a home. And this begs the question of what is propping up the housing market, the key driver of commodity prices.

It just keeps going up

While house prices have gone up, the number of houses available for sale has gone down. The available number of homes for sale in November dropped by 18%, reaching an all-time record low.

The time it took from signing a contract to buying a home, to when the construction of the house begins, dropped to just 22 days. That’s not a record low yet, but it’s a clear indication that demand for homes remains high.

Where is the demand coming from?

For decades, the number of people moving across state lines has been in decline, and last year reached the lowest amount since records began. Fewer people are moving out of the city, as well. Meanwhile, the National Realtors Association showed that sales of second homes increased by 1.7 percentage points over the prior year.

The differences in prices

While annual inflation jumped to 6.8%, the median house price jumped by 15%. Clearly, that’s a good way to avoid the vicissitudes of inflation.

That is, assuming the price of homes doesn’t collapse like it did a little over a decade ago. Some analysts are commenting on the similarities in the rise in house prices now, and 2006.

But there is a more recent event, just before the pandemic, we need to consider. Specifically, when the Fed finally got around to raising rates, worries over the potential impact on the housing market at the end of 2018 drove the market lower. And this ultimately led to the Fed halting their policy tightening.

Will we see a similar pattern this coming year?

Tomorrow, analysts anticipate the existing home sales for November to come in at 6.54M, up 2.7% from the 6.34M reported in October (when there was a 0.8% increase). That unseasonal increase in sales might be something to keep an eye on.

Open your account now to gain access to unlimited Orbex Trading Education!