September sales of existing homes fell short of expectations, following two months of gains. The problem is low supply combined with high prices; prices jumped nearly 6% annually, according to the National Association of Realtors, the biggest gain since January 2018.
Prices are being juiced in part by lower mortgage rates. Lower rates help with affordability, but they also give buyers more purchasing power, which in turn causes prices to rise.
"My bottom line is that the housing market has certainly responded favorably to lower mortgage rates, but the price points and geographies are mixed," noted Peter Boockvar, chief investment officer at Bleakley Advisory Group. "Higher priced homes, particularly in high tax states are sitting longer, while those selling below $500,000 in the South and parts of the West are moving quicker."
Realtors say there is plenty of demand, which they measure by the number of times their lock boxes are opened. Lock boxes, which allow entry to homes when the owner is away, can now be monitored electronically. Buyer traffic through homes is actually rising, but the traffic is not translating into higher sales.
"The opening of the lock boxes, SentriLock is showing improvement, so there is buyer interest because of lower mortgage rates," said Lawrence Yun, chief economist for the NAR. "But the price increases and lack of inventory are providing some pause for the actual signing of the contracts."
The number of homes for sale at the end of September was nearly 3% lower than September of last year. That makes four straight months of annual declines.
"Much of the sales boost this summer can be chalked up to interest rates dragging along the bottom this year, which enticed more would-be buyers into the market," said Matthew Speakman, chief economist at Zillow. "Now, sales are coming back to earth, largely because of an ongoing shortage of inventory. There simply are not enough lower-priced homes to keep the market humming. While builders are putting up more homes, their pace is not keeping up with what buyers demand."
Builders are increasing production very slowly but mostly in the move-up market. PulteGroup reported higher sales and new orders in its third quarter. It's CEO pointed squarely to lower mortgage rates improving affordability. But Yun seemed particularly frustrated with the homebuilding market, given the severe shortage of overall housing.
"We need more competition in the homebuilding industry," said Yun. "Big builders are doing well but we need many many small builders to get into the market provide more competition but we have to consider other options as well."
He suggested, among other things, turning suffering shopping malls into condominiums and building more micro-units.