As we head into the end of the year with an economy that remains anemic, one factor economists are closely watching is the housing market.
After crashing in 2009, housing has recovered nicely, with prices rising nearly to pre-crash levels. But one of the biggest reasons for the price rally, especially lately, is that the supply of homes hasn't kept pace with demand.
So where does it go from here, and what does it mean for the economy? The latest ValueInsured Housing Confidence Index is not overly encouraging. While home prices are rising, confidence among consumers in the housing market is about the same as it has been all summer.
“Home prices rose over the summer, putting them out of reach for many renters who also saw their rents rising,” said Joe Melendez, ValueInsured's CEO. “Another factor suppressing housing confidence is the unsettling presidential contest and uncertain future it entails.”
Put those considerations together with the hangover from the 2009 housing crash and Melendez says many prospective buyers really need a confidence boost.
The Millennial factor
Millennials are being a large and powerful block of consumers who are shaping the housing market, and the survey breakdown shows this generation continues to have economic anxiety and uncertainty. They're skeptical and prepared for volatility.
Sixty percent of Millennials questioned by survey takers worry the housing market has entered a bubble and could face a correction in the next two years. Only 47% of Americans as a whole hold that view. The survey finds that prospective first-time buyers, in particular, are worried about instability in the housing market.
Indeed, the latest data from the National Association of Realtors (NAR) suggests a slowing housing market going into the end of the year. At the end of September, NAR reported pending home sales – a statistic based on contracts signed but not yet closed – fell in August by 2.4%.
Fewer homes for sale
NAR chief economist Lawrence Yun attributes it mostly to fewer available homes for sale. Where there were higher inventories of homes, Yun says, sales were higher. It's just simple math.
He also has a warning – without an increase in new home construction, the housing recovery could, in fact, stall.
He notes that housing inventory has shrunk year-over-year for 15 straight months. That has meant homes sold faster and for more money. So it might not be all that surprising that people searching for a home to buy are feeling some angst.