What December’s 10% Home Sales Drop Really Means

Q: Gerald, I saw a headline that home sales dropped 10% in December. Is the real estate market going to crash? Edwin, Woodbridge, NJ

A: One good thing about real estate is that things move more slowly than the stock market, so even if we are heading to a real estate market downturn it’s not going to happen overnight. It is true that December capped the lowest home sales nationally in 3 years which is worth noting, however real estate is a local phenomenon not a national one and the percentage downturn is a relative measure that followed a long period of robust home sales.

Home sales have been very strong for a long time, so a sizable reduction doesn’t necessarily mean a slump is coming–long term trends are more important than short term market movements–it takes longer to track long term trends. One silver lining in the drop in sales is that home price growth has also declined recently in many places which may make things easier for 1st time home buyers, many of whom have not been able to afford to buy particularly given the shortage of starter homes in many real estate markets.

There are 4 stages in the real estate market cycle: recovery, expansion, hypersupply and recession. In most U.S. markets including the real estate markets I operate in, we’re still in an expansion phase although a recession will inevitably come at some point.

Thanks for your question, Edwin.  For more real estate information and tips visit my blog at geraldlucas.com.