The housing market will stay in a slump until buyers feel more confident about the economy and their own finances, and sellers are ready to accept more realistic prices.
The pace of existing home sales fell in August for the sixth straight month to the lowest rate in five years as many prospective buyers were turned away by lenders, the National Association of Realtors said on Tuesday.
While that weak sales number clearly indicates a present-day slump, gloomy consumer sentiment and signs of bloated inventory point to more troubled times ahead.
The number of existing single-family homes on the market hit a record in August, while a gauge of consumers' desire to buy a home hit the lowest point since March 1996. Both pieces of data signal more near-term problems for the housing sector, said David Berson, the chief economist at Fannie Mae.
People know that home sales are slow and that this is not the best time to sell a house. Newspapers' reports on problems in financial markets are reducing the appetite for real estate purchases, he said.
A much-publicized spike in the number of late and failing home loans has shaken the confidence of mortgage investors and potential homeowners alike, Berson noted.
On a rolling 12-month average, the percentage of people who say they plan to buy a house in the next 6 months is the lowest in 11.5 years, according to the Confidence Board's U.S. consumer confidence report, released on Tuesday.
Most economists don't view sentiment as a separate indicator, but you can view it as a nice summary of these other factors, Berson said. Clearly it is not favorable, whatever rating you give it.
While many would-be buyers are turning away from the market, far too many sellers are listing their homes at an inflated price said Stephen Stanley, chief economist for RBS Capital Markets, Greenwich, Connecticut.
Many of these sellers are not highly motivated. They are living in their homes. Still, presumably we are going to have to see a pick-up in sales to cut into the backlog of homes, he said.
While the national median price of an existing home barely changed in August, that should not be seen as a strictly positive sign for the market since a drop in price would surely spur sales and help clear the housing backlog.
The supply of homes has to dip below 6 months' worth before owners begin to see steady appreciation, and stubborn sellers who refuse to lower their prices may be stalling a recovery, said Eric Belsky, executive director at Harvard University's Joint Center for Housing Studies in Cambridge, Massachusetts.
There are a lot of people who have their homes on the market and who do not have a compunction to sell, he said.