Is the Homebuying Market Softening?

The U.S. economy is booming, but the housing market is lagging, according to the LegalShield Law Index, a quarterly indicator of the economic and financial status of U.S. households and small businesses.

The LegalShield Law Index report also includes data from the LegalShield Foreclosure Index in addition to the Consumer Financial Stress Index, Housing Activity Index, Real Estate Index, and the Bankruptcy Index.

The index, which was released on Monday indicated that its consumer financial stress component remained historically healthy despite falling 1 point in the third quarter to 74.9, while its bankruptcy index, a leading indicator of quarterly bankruptcy filings had improved 3.9 points to 46 suggesting that bankruptcies would remain subdued in the near term, despite signs of lenders pulling back in the credit market.

Despite the booming consumer confidence, LegalShield said that it was less optimistic about the housing market. "Although the housing market varies from region to region, overall we're not seeing a big rebound occurring any time soon," said Dave Coffey, SVP and Chief Digital Officer at LegalShield. "The Federal Reserve is on track to raise rates for the fourth time this year in December, which will put even more upward pressure on mortgage rates and make home buying even less affordable. Normally we'd expect to see home builders respond by ramping up construction, but it just hasn't materialized."

The index's real estate component indicated that home sales were unlikely to improve in the short term due to severe inventory shortages and rising prices. According to its Housing Activity Index, the housing construction momentum had also stalled in 2018. "Residential construction continues to face numerous headwinds, including labor supply shortages; rising labor costs; and (most notably) rising prices for lumber, steel, and aluminum, where tariffs continue to put upward pressure on prices," the report indicated.

Overall, Coffey said that their data pointed to three takeaways—an expectation of a strong holiday season for investors and shoppers; a good year for seasonal retail workers as labor is in short supply and demand is strong; and an opportunity for small businesses to expand. "The outlook for Main Street hasn't looked this good since before the recession," Coffey said.