“The main reason we have become more cautious is that when mortgage rates rose 100 basis points this summer, home sales pulled back dramatically, which raises doubts about how many households are prepared to become homeowners,” the economists say in their October Housing Data Wrap-Up report.
They note in Friday's report that most housing data have weakened since premature talk of the Federal Reserve tapering its bond buying “effectively pulled the rug out from under the housing market this past summer.”
As a result, the WFS Economics Group has lowered its estimate for new home sales this year to 440,000, up 19% from 2012. Back in July, the WFS economists expected a 24% increase in new home sales.
While house prices continued to rise during the summer, “the recovery in home prices exaggerates the extent of the improvement in the housing market,” the October report says.
Rising prices will “bolster the confidence of potential buyers,” the report says, and more homeowners will have enough equity to trade up. “Unfortunately, this process takes time. Inventories of existing homes remain exceptionally lean and many potential home sellers are waiting for an even better time to sell.”
In a previous report, the WFS economists warned that the housing recovery is at a “turning point” and it needs more jobs and income growth to increase the number of homebuyers.