The Slowing Effect of Housing Market - Essay Example

This is according to the National Association of Realtors' monthly survey on real estate agents. On the other hand, foreclosing has incorporated selling out at a discount rate to traditional homes. This is because of lenders’ motivation to cut the price and to sell fast. In addition, the maintenance of these homes is not up to standard. As a result, a foreclosed property sale can bring down the ‘comps’ involved in appraising the value of other homes being sold in the neighborhood. A survey carried out indicates that sales from previously owned homes have gone down during the last eight months. The sales were down 7.5% a year earlier, resulting in five consecutive months where sales have dropped below the year-earlier level (Timiraos, 2014).

Moreover, some of the declines in the existing home sales are because of the shrinking supply of distressed homes. To the home sellers and builders, this is good news, unlike for the investors or real estate agents whose living was depended on recycling these properties onto the market. Although the home prices no longer depreciate, traditional sellers have been reluctant in listing their homes for sale. In addition, the building of new homes is still low. The impact of this is that the homes in the market are not many. The effect of this is that prices are very high due to the high demand, but the homes are less in supply. To the homeowners, this is a great deal but unwelcoming to anyone in search of a house and currently does not possess one. Therefore, even as home sales have decreased, the monthly supply of homes is way below the highs of the housing bust because there are few homes available to make a choice.

The slowing effect of the housing market is therefore due to a few homes available for sale, leading to high prices. These gains are the cause of homes being less affordable, particularly after mortgage rates heightened recently. Despite mortgage being low, homebuyers may still require an adjustment period to the reduced affordability, due to the effect of both high prices and rates. The increase in mortgage rates implied that borrowers no longer possessed purchasing power they enjoyed previously when the rates were one full percentage lower (Timiraos, 2014).

In the case of low inventories and fewer foreclosures holding back sales of existing homes, builders should therefore be constructing new homes, which has not been achieved so far. Moreover, the rate of new-home sales rose by 14.5% in March compared to February this year. There is a focus by builders to build fewer homes, creating high demand, thus fetching high prices to cater for rising labor, land, and supply costs. Smaller builders’ consideration for credit is minimal since they do not have easy access to capital markets, thus kept on the sidelines. In simple terms, housing’s rocky recovery signals a weakness in the economy that is affecting many households.