Existing Home Sales Tumble, Signs Point to Drop in Housing Demand

Existing home sales nationwide dropped by 7.1 percent from January to February as total units sold went from 5.47 million units to 5.08 million. The Northeast experienced an even greater drop at 17.1 percent.

The National Association of Realtors (NAR) cited a lack of supply and increasing home prices as the main two causes. While home prices have been on the rise over the past two years, housing supply is also up. In fact, total housing inventory increased by 3.3 percent at the end of February.

Typically, a rise in home prices coupled with a drop in homes sold signals a lack of real market demand. This could be due to the long-term efforts by the federal government to artificially increase home buying through FHA loan expansion, government backed mortgages, and artificially loan interest rates.

This is particularly troublesome for first time home buyers who are now looking at rentals as more affordable options. The 2015 annual share of first time homebuyers hit its lowest mark in three decades as demand for rentals, particularly among Millennials in urban areas, continues to climb.

Instead of artificially increasing the demand and subsequent price of homes, the federal government should stop interfering with the housing market altogether. This will help ensure market stability as housing prices, supply, and demand reach equilibrium, while giving more consumers a chance to purchase their first home.

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