Why Did Home Sales Drop in August 2016?

Prior to August 2016, real estate experts reviewed home sale trends and came to several conclusions.The most important being that home sales would hit 5.45 in the U.S. during the month of August.However, the month came and went with 5.33 million in sales, falling short of expectations.Despite just missing projections, 5.33 million is a healthy number and shows that buyers are still very active.It only represented a 0.9% decline which is nothing to panic about as the real estate market continually fluctuates.

Still, some may wonder why sales fell short when they were expected to be slightly higher.According to one real estate expert, the answer is pretty straight forward.Lawrence Yun, NAR's chief economist went on record and said, “We go back to the same bottom line: lack of inventory choices and prices rising way too fast.”

The Problem with Having Less Inventory

Lack of inventory is not a new issue.In fact, it has been a problem throughout 2016 and even 2015.There are several reasons why less homes are on the market.For example, a decade ago, 16 million people purchased homes at the very peak of the real estate boom.Now, these individuals are holding onto their properties in the hopes that prices will continue to go up so they can sell and make some return on their investments.Yet, these buyers may have to wait years before that ever happens, if it happens.

Another reason would be that buy and hold investors are actually holding onto their rental properties much longer instead of selling.With rent prices continuing to escalate throughout the country it makes sense.Investors are earning larger rents each month and have little incentive to sell.

The Problem with Higher Prices

For those in house flipping investing, this issue is both good and bad.Higher prices on properties means investors are achieving significant returns on their investments.However, this also means that there are less people who are able to buy properties.For instance, consider millennials throughout the U.S.Many are choosing to rent because they can’t afford to buy and they can’t set much money aside because they pay such high rent prices.

It has been reported that in August 2016, despite tighter inventory, the median house price rose 5.1% compared to the same time period in 2015.Furthermore, the NAR Generational Survey showed the number of millennials buying homes in cities or urban area decreased by 17% in 2016 compared to 2015.The Survey also revealed that younger buyers are buying older homes because they are more affordable.

A Note to House Flipping Investors

Despite August’s conditions, house flippers still have great opportunities ahead of them.As mentioned above, those who fix and flip homes are earning higher returns when their properties sell and due to the lack of inventory, they often get multiple offers from buyers.Buy and hold investors are also making great profits as there are many people looking to rent and landlords are asking for higher rent prices than in the past with success.