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Annual home sales have been moving sideways in recent years: 5.4 million in 2016, 5.5 million in 2017, and 5.3 million in 2018. As of June, this year’s total stands to be 5.2 million on an annualized basis. These flat numbers make little sense in light of the decent economy. From 2016 through the first half of 2019, the economy added 8 million net new jobs at higher pay. Moreover, household net worth grew by $13.5 trillion, thanks to the rising stock market and surging real estate prices. The unyielding homeownership rate has led to a more concentrated build-up in wealth than if ownership had expanded.
Perhaps reduced tax benefits for homeowners is the main the reason home sales have become sluggish. Fortunately, the market is shifting for the better because of amazing mortgage rates. The Federal Reserve’s decision to be more accommodating has brought mortgage rates down to under 4%. The housing supply remains a hurdle but steadily homebuilders are responding by building more spec homes and at lower price points, where the demand remains the strongest. REALTORS® are also witnessing an uptick in seller inquiries in our consumer survey. Consequently, pending contracts rose in June in all major U.S. regions, marking the first year-over-year gain in 17 months. Barring headaches over inspections, appraisals, and mortgage funding, closing activity is expected to shoot higher in the second half of the year.
And the economy still has room to grow. Home building needs to increase robustly to address the inventory shortage. And falling vacancy rates in office, industrial, and apartment properties suggest commercial construction needs. The main looming worry is the impact of the intensifying trade war on corporate investment and the stock market. In a good economy, business investment should be rising around 5% or more—certainly roughly in line with the growth in profits, which have soared. That’s not happening, and it’s a concern.
