Home Sales as an Economic Indicator
Home Sweet Home — but not just for the buyer.
When it comes to home shopping, it’s more than just wall accents and different furniture. Oftentimes, the sale itself is a strong indicator of housing market trends and the overall health of the economy. From the price tag to the property tax, the changing patterns are a telltale sign of where we are now and what to expect.
No Two Homes
It’s important to first understand that even if two homes are built equally, they are not always sold equally. In fact, it can be the same piece of plywood and nails, but the volatility in sale price is largely dependent on inflation rates, interest rates, and the housing markets. A lot of it is also dependent on us, the consumers. Additionally, home sales can be impacted by foreclosures or mortgage delinquencies, which is when homeowners fail to make payments on their mortgage as required in their contract. These are all elements of distressed home sales, which can be a sign of a weakening or strengthening economy.
Now and Later
But for all non-distressed home sales, the trend in these sales is not only an indicator, but a predictor of our economy as well. Rising home sales often signal a stronger and healthier economy — more people buying property means more money circulating. The inverse also holds true, where a decrease in home sales can indicate a declining economy with many factors, such as incomes and interest rates coming into play. For instance, interest rates can rise to cool off a hot economy, and when they do, home sales often fall. And historically, when there was a significant downward trend in home sales, a recession soon followed.
A Look Into Now
Currently, the new single-family house sales in the US are the lowest they’ve been since 2016. In July of 2022, they plunged 12.6% month by month to an annualized rate of $511k, $64k below forecasts of $575k. And due to the housing market cooling from rising mortgages, borrowing rates and material costs, the median prices of new houses sold shot up to $439,400, $28,400 higher than the year prior and the average house sale $546,800, compared to $462,100 last year.
Make Your Bed
It’s natural for anyone to want a home. But for all the aspiring homeowners who want to make their bed, they also have to lie in it. It’s difficult for home sales to be viewed as an isolated number because of the variables that are intertwined in even getting preapproval for a mortgage. From there, it’s business with the banks — how much the loan is, what interest rate they charge, when the payments are due. And like a domino effect, a lot of this risk is assessed by people’s incomes and employment, their credit scores and past financial records, as well as their overall stability in life. And ultimately, they either go big or go home.
