Why Home Sales Are Worse Than Ever

Home sales are on track for their worst year since the mid-1990s, nearly 30 years. Why? Where is the housing market headed and will conditions improve under either a Harris or second Trump administration? Let's ask finance reporter at the Wall Street Journal, Gina Hebe. Gina, thanks so much for being with us today. It is a staggering statistic because we all thought, analysts thought the recovery would be well underway by now. What's happening? Thanks so much for having me. And you're exactly right. It is the second year in a row that we've been on this track. And a big reason is it's just really unaffordable in this market right now. You have home prices that have hovered near record highs for a lot of the year. You also have very high mortgage rates. And that has kept people kind of locked in place, kept this market locked up and thus home prices high. We had a very unusual period a couple of years ago where rates were really low. And a lot of people were able to secure a 3 percent mortgage, for example. And, you know, that's very hard to give up when rates are now at 6 percent. So a lot of people are just staying put, not selling, and that's keeping inventory low and prices high as well. All right. So let's try to unpack all the necessary ingredients here. And obviously, to your point, mortgage rates is usually the biggest driver here. They were coming down. They were around 6 and have since gone back up to around 7. Why? So the Federal Reserve recently cut rates. And in the weeks up to that, you know, traders were pricing that in. So rates did fall toward 6 percent. However, since then, we've got some stronger than expected economic data. There's also been some concerns about the deficit. And so the 10 year Treasury yield has gone up quite significantly. And mortgage rates tend to track that. So they've also been on the rise and now are around 6 and a half percent. Really interesting dynamic there. Will they continue to fall as Jerome Powell and the Fed continue to cut rates? And where do you think rates need to get to really thaw out a frozen market? Right, right. So where rates are headed really depends on how the economy performs. Of course, the Fed still is trying to make sure that inflation stays under control. But if we keep getting hotter than expected economic data, that could keep rates higher. If inflation goes back up when we get a new person in the White House, that could also affect it. The place we need to get to, it's subjective from person to person. However, some of the surveys suggest five and a half, five percent or below would help some people. I don't think that would, you know, there's any magic number for a rebound because rates were so low a couple of years ago. But we do need to get, I think, under six percent. And some of the big forecasters have estimated that next year, we're going to stay close to six percent and head back toward five if we're lucky. But it's just not going to get back to that pre-pandemic level. So that would suggest a recovery, not at least until 2026. Inventory is the other issue you mentioned, Gina. Why does it remain so stubbornly low? Right, so inventory did ease a little bit. We got a little bit of activity in anticipation of that Fed cut. So inventory's been going up a bit, but it's still just historically low levels for a lot of the reasons we talked about with people just staying in place in the homes they're in, because they don't want to give up a three percent mortgage, you know, because if they leave that, they're going to have to get a new one at double the interest rate. And that can be really significant. I mean, the difference between three percent and six percent on a mortgage, which is a 30-year loan, can mean you're paying hundreds of thousands more dollars in interest. And checking the stocks of the big homebuilders, they are all, for the most part, up, having a good year, but not as much as, say, the S&P across the board. Are they refusing to build? Why wouldn't they want to put more inventory out there? So homebuilders are dealing with the same issue that, you know, people are reluctant to take out mortgages at these higher rates, especially compared with a couple of years ago. They have been using some tricks to keep volumes up, including buy downs, which is just essentially the homebuilder is helping, you know, lower your mortgage rate, either for a couple of years or the entire mortgage, life of the mortgage. And that's helped them keep volumes up, helped keep their stocks elevated. So it's not a lack of wanting to build new homes, but they're also dealing with, you know, demand issues, as are, you know, previously owned home sellers. Right. And they're trying to thread that needle. They want to keep their stock price up. They want to keep their shareholders happy. So they don't want to flood the market with inventory, needless to say. So you mentioned the election just a couple of days away. What are both Kamala Harris and former President Trump saying they will do to address the problem? So both of them know that this is a huge campaign issue. I mean, Americans are very frustrated by how the housing market has been the past couple of years. And with affordability so low, it's just, you know, really locked a lot of people out of this market or kept them in homes they don't want to be in anymore for longer than expected. And so both have vowed to bring down home prices and help with affordability. Should they be elected? They take different approaches. Harris has said that she wants to build more homes and help with down payments. Trump has said he'll cut some regulations and allow more home construction on federal lands. But it's really unclear what exactly those policies would look like, should they be put in place, and how much that would help with these other, you know, this perfect storm of factors we've talked about. OK, I'm curious about the impact of rising home insurance rates. How much is that impacting the market? And is there any solution there? Because, you know, look at Florida. They are fleeing. There's almost none left. Right, exactly. So that's a great point. You know, it's not just home prices and interest rates. It's also, I mean, the cost of homeownership is exploding in other places as well, you know, including insurance. It's a huge issue right now. You're seeing premiums go up, you know, double, triple, especially in places you mentioned like Florida and California. You see insurers pulling out of entire states or markets. And, you know, that scarcity is really driving up prices. And, I mean, there's not really, especially with the recent hurricanes, there's not really a clear solution to that because it's like, you know, in some places states are stepping in. But is that going to happen on a wide scale? It's not clear. And then sometimes those state programs, state-backed programs are, you know, more expensive than the private market. So it's a really difficult situation. That's a good point. Florida really is becoming the insurer of last resort. Back-to-back hurricanes may reverse the entire migration that Florida saw coming out of COVID. Interesting conversation. Thanks so much. Wall Street Journal finance reporter, Gina Heave. Thank you. Thank you so much for having me.