This Shocking Statistic Has Real Estate Investors Worried

Recently, volatility has drawn attention to the stock market. Even casual investors are watching closely as wide swings in stocks threaten the bullish returns the markets have provided this year.

While the stock market has been fluctuating, real estate has been quiet for the most part.

On Tuesday, the National Association of Home Builders (NAHB) released the following statement:

“In a further sign of ongoing challenges for the housing market, the latest HMI survey also revealed that 41% of builders reported cutting prices in November, a record high in the post-Covid period and the first time this measure has passed 40%”

Supply and Demand

There are two key factors at work here. The first is a lack of demand due to housing prices and interest rates. There is some pent-up demand for housing, but potential buyers are waiting for mortgage rates — and hopefully housing prices — to come down.

There is also a supply issue in housing. Many real estate owners and investors have no incentive to surrender their 2.5% 30-year mortgages. The rate on most 30-year fixed-rate mortgages currently exceeds 6%.

The result is a standoff. The following chart illustrates existing home sales over the past 10 years, revealing a three-year post-pandemic decline in sales.

If 41% of homebuilders are lowering prices, could a further decline in housing sales materialize?

Stock Market Shows Fear

In the stock market, one bellwether for the real estate industry is the S&P Homebuilders ETF  (XHB) . That ETF is down 2% for the year, but the decline is accelerating. XHB has lost 7.5% in just the past month.

On Tuesday, XHB traded at its lowest level since July. The ETF has broken support (black dotted line), and recently fell below its 200-day moving average (red). Both the 50-day (blue) and 200-day moving averages are pointing lower, a negative sign.

Slowdown in Job Creation Affects Real Estate

Then there is the job market to consider. Thursday’s delayed non-farm payroll report is expected to deliver just 50,000 jobs. In August, only 22,000 jobs were created.

The lack of new jobs affects both supply and demand in the housing market. Obviously, it’s tough to buy a house when you can’t find a job. That, along with perceived high prices and high mortgage rates, affects the demand for housing.

The lack of new jobs also affects housing from the supply side, as a new job is often the reason for selling a home. Because of this, fewer opportunities in the job market can reduce the number of homes for sale. 

Home Sweet Home

There is also the work-from-home revolution to consider. According to the Bureau of Labor Statistics, in 2019, about 6.5% of workers in the private business sector worked primarily from home. By 2024, that figure had climbed to 22.9% of the workforce. These workers are less likely to sell their homes due to a change of employment. 

Should Investors Worry?

Not yet. It’s possible that we’re seeing a short-term fluctuation in new home sales, and it’s causing homebuilders to temporarily reduce prices. This should be viewed within the context of a post-pandemic period of overall slow real estate sales.

What would be worrisome is if that fluctuation became a trend. If homebuilders continue to lower prices, it could be a sign that the economy is slowing — and with it, the housing market. 

At the time of publication, Ponsi had no positions in any securities mentioned.