Are slow housing sales always a bad thing? Hell no.

by Stephane Fitch


Real Estate Advisor
 
The stock market plunged yesterday, driven largely by concerns over news of a 26% slowdown in the pace of home sales reported by the National Association of Realtors. But before we all conclude that there’s nothing good about huge drop in sales of used homes, that it absolutely must be terrible news, let’s stop and think.


I’d like to propose a simple idea: The drop in sales volumes is good news, even great news.

Whenever thinking about economic data that is universally regarded as a harbinger of horrible things to come, I try to consider an opposite scenario. What if the data had said housing sales were at a blistering pace? Well, that would have been greeted as good news. And in fact, the last time that the Realtors were reporting that homes were trading at an all-time record pace was…

Well, by golly, that was during the housing bubble. The housing market of 2005-2006 was a model of poor health—prices out of whack with rents and median incomes, Fannie, Freddie and the banks giving away debt to anybody with a pulse—yet the vast majority of folk (not everybody, but most) were citing the rapid pace of sales back then as great news.

So couldn’t all the people pointing at the super-slow pace of sales now be wrong when they say that housing and the economy is forever doomed, just like they were wrong when they were citing rapid home purchases as a sign of good economic footing back in 2005 and 2006? Hell yes, they’re wrong.

I think the slow pace of home sales represents, above all, a sign that homeowners, home sellers and home buyers are coming to their senses. A market full of sober, careful players is a good thing.

If you want to watch housing data, pay attention to the numbers that really matter, like “affordability.” That’s the measure of the average monthly payments that buyers in an area face when buying median-priced homes versus the median income. In the vast majority of places in the U.S., affordabilty is up since 2005-2006. That means that the people buying homes today will not be house poor. They’ll have more to spend as their incomes grow and the economy recovers in the next year or two.

That’s a hell of a lot better than those of us who purchased homes when the pace of sales was roaring can say. (My situation? I purchased a home in Chicago in December 2007 for less than it had been worth when values peaked in Chicago but at least 10% above its current value.)

Image by Getty Images via @daylife