As recently reported in the Wall Street Journal, the demand for new homes has sharply declined during the first half of 2014. This development may have lasting consequences beyond the housing market and into the broader economy.
Sales of new homes fell 4.9 percent through the first half of the year compared to those figures from 2013, according to figures recently released by the U.S. Commerce Department. Experts in the housing market point to lasting effects from the mortgage crisis, increases in student loan debt, and increases in home prices as some factors contributing to a decline in single-family new home sales. As stated by John Burns, chief executive of his own housing-research firm bearing his name, "I just think there's a real lack of confidence to buy a home and take on a mortgage right now, which is really hurting the housing market."
"THERE'S A REAL LACK OF CONFIDENCE TO BUY
A HOME AND TAKE ON A MORTGAGE RIGHT NOW"
These trends could have long-term consequences in the broader economy heading into the second half. Job creation and economic growth in the construction industry may be adversely effected. Before the mortgage meltdown, home construction was a major contributing factor to a robust economy and creation of jobs. Historically the industry accounted for 5 percent of the U.S. economy, according to the National Association of Home Builders. That figure has fallen to 3 percent recently.
Weakness in demand has replaced the weakness in supply. Rising property values and steep price increases in the past two years put new homes out of reach for many buyers. The median price of a home – $273,500 – is substantially higher than in past years. Additionally, mortgage-qualification standards have become too-strict for many buyers in the market.
Many of these factors raise concerns about the economy as a whole heading into the second half of 2014. There may be no improvement in mortgage applications and no movement on the tight lending standards that will contribute to this absence in economic momentum. Many buyers who are priced out of the new-home market will rely on the resale market, as there is more inventory. This weak demand for new homes will cut down on construction employment gains, which will have a negative effect on the overall economic picture for the remainder of 2014.