More Potholes for Housing Recovery

While home sales prices posted moderate gains in September, the housing market recovery as a whole is moving slowly, according to the Wells Fargo Economics Group Housing Wrap Up for October 2014.

New home sales increased by only 0.2 percent month-over-month in September after shooting up by more than 15 percent in August. And while new home sales have increased by 22.6 percent since September last year, that percentage is perhaps more a reflection on the exceptionally weak sales numbers posted in September 2013, according to Wells Fargo. Existing home sales climbed by 2.4 percent from August to September, the highest percentage in 11 months. Year-over-year, existing home sales were 1.9 percent higher in September.

The median price of new homes dropped sharply in September, according to Wells Fargo, declining by 9.7 percent month-over-month and 4.0 percent year-over-year, indicating that more discounts are being offered by builders to move inventory. September declines in the median and average sales prices for existing homes were reported by the National Association of Realtors, indicating that more sellers are offering homes at a discount.

Homeownership rates tumbled to 64.4 percent in Q3, hitting their lowest point since 1995, according to Wells Fargo. The report attributes the low homeownership rate to a decline in market discipline that was a longtime hallmark of the housing industry—first-time homebuyers made sacrifices to save for a down payment and therefore had a greater stake in home buying. The market shifted and disciple relaxed, resulting in the sales of many homes with little or no down payment, which resulted in poor outcomes for buyers who purchased a home without consider factors such as builders, neighborhoods, or school districts. The report said that many would-be buyers "now remain chagrined to the point that they are unlikely to buy a home anytime soon."

Among individuals under age 35, homeownership rates stood at just 36 percent in Q3, down 7.6 percentage points since peaking 10 years ago. But While many point to the low homeownership rates among millennials as the reason for slow housing recovery, Wells Fargo does not believe the younger generation is completely to blame.

"We believe the missing link in the housing recovery is the lack of strong job growth," the report said. "While overall employment has surpassed its pre-recession level, much of the rebound in employment has been in part-time jobs."

Wells Fargo found in the report that there are 1.1 million more people working in the U.S. than there were prior to the recession, but the gains have come strictly in part-time jobs, where 3.7 million more people are working. The report said there were actually 2.6 million fewer people working in full-time jobs than prior to the recession, and "the 2.6 million worker gap from pre-recession employment levels likely explains a great deal of the slow motion recovery in the housing market" since people working full-time are more likely to buy a house than those working part-time.