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The Economy Roars, But Housing Slumps 

Changing demographics and an imbalance in housing stock are two concerns of today’s market 

You read the headline, “lowest unemployment rate in 50 years achieved in October 2018.” Not since 1969 has the unemployment rate been this low. Real wages and household incomes are growing at the fastest rate since the early 2000s.  

Meanwhile, existing home sales are slumping—down six of the last seven months on an annualized basis. New home sales are up slightly, but the year-over-year results have bounced up and down like someone on a trampoline. Affordability has decreased significantly. Inventory levels, while increasing in most markets, are still incredibly tight. Mortgage rates have risen to their highest levels in at least ten years. Year-over-year average price increases are softening. 

The Great Imbalance 

The impact of too many households chasing too few homes for sale has finally reached a point where households can’t or don’t want to, purchase into this kind of a market. There are great imbalances between the kinds of housing consumers want to buy and the availability of homes to fill that need. There are not only far too few homes for first-time homebuyers, but there’s also a critical shortage of smaller homes for Boomers who want to downsize. In some markets, these two demographic groups are competing for the same homes. Meanwhile, the smaller size of Generation X, compared to Boomers, means there are far fewer households available to purchase what the Boomers are trying to sell. 

A cooling housing sales market will help rebalance these contradictions. It will cool housing price increases. It will head off rampant speculation that drove the industry into the tank in 2006. However, in flat markets, it will lead to even more competition in the brokerage industry. And, that will make growth more challenging and profitability particularly more difficult. 

 

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