Springtime is usually the beginning of the home-buying season which means a big jump in home sales. However, Ian Shepherdson, chief economist and founder at Pantheon Macroeconomics, thinks this spring is going to be the beginning of a big drop in home buying activity…(Fortune)
- “The housing market is in the early stages of a substantial downshift in activity, which will trigger a steep decline in the rate of increase of home prices, starting perhaps as soon as the spring,”
Shepherdson is making this prediction based on falling mortgage demand. While refi activity is down significantly and gets most of the attention purchase activity was off 8% when compared to the same time last year, according to the Mortgage Bankers Association.
- A drop in home sales could have a big impact on the overall economy, “A sustained drop in home sales — new home sales will fall too — would be a direct drag on GDP growth, at the margin, via downward pressure on residential investment, and all the services — legal, removals, and others — directly tied to sales volumes…It would also depress retail spending on building materials, appliances, and household electronics.”
Many are jumping on this as dire news for housing and the overall economy. However, the housing market is so hot right now a slowdown is necessary to avoid another bubble forming. Some would argue we are already there, but those people have been saying that for five years. To make it clear, Shepherdson is not arguing that prices are going to fall along with sales. He is arguing that prices are going to slow saying in his note “Falling sales will hit economic growth, at the margin, but rising supply will dampen price gains…And slowing price increases eventually will feed into slowing rent inflation, but likely not until next year.” Talk to anyone in housing and they will cheer this prediction. Slowing prices and slowing demand is exactly what is needed to calm things down in housing before things overheat. The only people who should be upset by this prediction are sellers who were hoping to get 100k over asking…
