The housing market is in the absolute dumps
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Even as the stock market approaches an all-time high, there is a big dark cloud hovering over the economy: the housing market.
Why it matters: Home sales are hovering at historic lows, as economic uncertainty and high mortgage rates hold back buying.
By the numbers: Pending home sales — deals that are in contract but not yet closed — rose 1.8% in May over last month but are still at record lows, per data from the National Association of Realtors released Thursday.
- The only other time over the past 20 years that pending home sales have been this low was in 2020, when COVID briefly froze the real estate market.
Zoom in: Other indicators are flashing terrible, too. Existing home sales fell year-over-year in May to their slowest pace since 2009 (when the market was in tatters during the financial crisis), per NAR.
- Home prices are now rising at the slowest annual pace in two years, per Case-Shiller data.
- Housing starts, or new homes beginning construction, dropped nearly 10% in May, the weakest since May 2020 — a sign that home builders are losing confidence in the economy.
Zoom out: Even so, the news about a slight increase in pending sales cheered the sad Realtors — who've been seeing historically depressed home sales for a couple of years now.
- "The bottom in home sales appears to be over with the possibility of a strong upswing once mortgage rates decline," NAR chief economist Lawrence Yun said in a statement — though he cautioned that the market is seeing higher-than-normal cancellation rates and last-minute cold feet.
- In other words, even the little bit of good news comes with a big caveat.
The big picture: There's not much to like in real estate right now: news of ICE enforcement actions at home building sites, tariffs raising the price of construction materials, and of course, weak demand in general.
- "It's less about mortgage rates, and more about economic uncertainty," says Eric Finnigan, vice president of demographics research at John Burns, the real estate consulting firm.
- Folks are nervous about the job market, in particular.
The intrigue: There's a new kind of golden handcuff holding back the market, he says. Sellers are chained to their inflated home values. Many have seen their Zestimates rise by 50% or more since 2020.
- "They see that as money in the bank," he says, and they're not willing to go lower. "There's just less urgency to move."
Between the lines: As home builders contend with a freezing sales market, ICE is making things even more chilly. In a recent survey of home builders, conducted by Zonda, some companies reported that the immigration enforcement agency is starting to visit job sites.
- Visits from ICE have impacted workforce participation, they said. Any time there's an ICE visit, builders tend to see more "no-shows" as workers — even those who are here lawfully — worry about getting caught in the net of the federal government.
- The industry didn't comprehend how many negative hits housing would face from White House policies this year, says Ali Wolf, chief economist at Zonda.
The bottom line: "The housing industry is already riddled with challenges," Wolf says. "And I don't think we realized how many more we were going to face."
