Market Volatility and Housing Demand: Trouble Ahead?

Consumer confidence in housing has been on a slow and steady rise all year long, thanks in part to rising home values and a recovering job market. However, the market volatility in the U.S. stock market, overseas in emerging economies, and concern about interest rates may hurt that confidence.

Zillow’s chief economist, Svenja Gudell, says the concerns are legitimate. “Between Greek default, war, plummeting oil prices and most recently, fears of a Chinese slowdown, it’s been a volatile summer. Like swimming with a bully in the pool, it seems like every time the market comes up for air, something comes along and pushes it right back down again.”

Consumer demand for housing dropped for the fourth month in a row. Redfin, a real estate brokerage says its monthly demand index dropped by 5 percent from June to July alone. However, the numbers are still 9 percent higher than one year ago. Redfin’s chief economist, Nela Richardson said,”We’re starting to see buyer fatigue set in. They’re starting to wonder, ‘is this house worth this price,’ and we’re seeing buyer demand finally, after months of being over the top, starting to pull back.”

While the market saw gains back May, home prices rose 4.5 percent nation-wide in June, which was higher than the market’s boost. David Blitzer, S&P’s managing director, noted that the difference was, “two and three times the rate of inflation.” First-time buyers are particularly absent from the market—having been priced out with lower-end homes seeing bigger price jumps. The cost of high rent has also made it difficult for renters to save for a down payment. In July, first-time buyers made up only 28 percent of sales, down for the second straight month. Lawrence Yun is the chief economist for the NAR and explained, “The fact that first-time buyers represented a lower share of the market compared to a year ago, even though sales are considerably higher, is indicative of the challenges many young adults continue to face.”

While single-family housing starts were in slightly bigger supply back in July, the interest rates and stock market volatility could potentially hurt demand. Buyers are continually frustrated by the market’s lack of homes for sale, which means slower sales. However, prices could potentially drop with if the sales pace continues to slow down, which would lead to more stable and healthy growth.

Widespread market volatility remains a serious factor to consider, and the Fed’s upcoming decisions will certainly impact the housing market. However, for those trying to save up for a down payment, financial planning can go a long way in helping you realize your family’s dreams. Contact an expert at Apex Financial Advisors today to talk about down payments and options to get your finances on track for homeownership.