Economists and real-estate agents are finding out that younger and middle-income buyers getting squeezed out.

 

Sales of existing homes fell in October after a September surge, as rising home prices and a lack of inventory challenged potential buyers. Meanwhile, more children are living with their parents than during the 2007-09 recession, an indicator that young adults aren’t striking out on their own despite substantial improvement in the economy.

The pace of existing-home sales fell 3.4% in October from September to a seasonally adjusted annualized rate of 5.36 million, the National Association of Realtors said Monday.

Home sales have slowed especially in pricey markets, such as California, where younger and middle-income buyers had struggled to get into the market. Housing markets that are dependent on oil, such as Houston, Texas and parts of Louisiana and North Dakota, have also suffered amid a plunge in oil prices.

Existing-home sales fell 3.2% in the South and 8.7% in the West, while the Northeast was flat and the Midwest saw a small 0.8% decline, according to NAR. Home prices in the West have shot up 8% since October 2014, and are up 6.2% in the South from a year ago.

“I’m very worried about affordability,” said Leslie Appleton-Young, chief economist for the California Association of Realtors. She said the market is being “choked” by the inability of entry-level and middle-income buyers to afford homes.

Another clue that affordability could constrain home sales going forward: Sales at the lower end of the market, homes costing $100,000 or less, dropped by 9.1% from a year ago, although this could also reflect a decline in distressed sales. Sales at the mid-to-upper end of the range were all higher from a year ago.

The national median home price fell slightly to $219,600 from September, 5.8% higher than October 2014, marking the 44th consecutive month in which prices nationally have risen year-over-year.

The trend of young people continuing to live with their parents despite improving job prospects could damp demand for both rental and for-sale housing in the coming months and years.

The share of 18- to 34-year-olds living with their parents was 31.5% as of March 2015, up from 31.4% last year, according to a report from the Commerce Department on Monday. In 2005, just 27% of young adults lived with their parents, a number that has climbed pretty steadily since then.

“The long-term demographic shifts suggest this might be the new normal, with young people living with their parents longer and more permanently delaying household formation and homeownership,” said Jed Kolko, an independent economist and senior fellow at the Terner Center for Housing Innovation at the University of California, Berkeley.

By Laura Kusisto and Anna Louie Sussman
WSJ