Will Slowing Home Sales Impact the Local Economy?

Slowing home sales are a red flag—especially since the housing market was the catalyst for the worst recession in history more than a decade ago. At the end of 2018, home sales in California fell, according to research from Pacific Union, particularly in the San Francisco and Los Angeles markets. Starting in April 2018, home sales in Los Angeles fell dramatically, and in January 2019, they were down 18% year-over-year. In San Francisco, home sales fell during the same period, down 16% as of January 2019.

Despite the slowdown in home sales, there is likely to be little impact on the local economy. “Sales of existing homes does not have the same impact on the local economy as sales of new homes, much goes into building a new home that multiplies thru the economy including paying of labor, materials,” Selma Hepp, chief economist an VP business intelligence at Pacific Union, tells GlobeSt.com. There has been little new home construction in Los Angeles and San Francisco, and existing homes will have a minimal negative impact if they sit on the market longer.

However, home sales can also be an indicator of consumer sentiment. The decline in home sales could be an indicator of falling consumer confidence, particularly if it aligns with slowing retail sales. “Decline in sales activity says a lot about how consumers are feeling and it suggest they are concerned about the future of the economy which may also lead them to spend less on other products,” says Hepp. “We actually saw that in very weak retail sales figures for December.”

The decrease in home sales has also triggered falling housing prices in both Los Angeles and San Francisco. This could lead to fewer owners willing to bring homes to market, exacerbating the housing shortage. However, in the early months of the year, for-sale home inventory has increased. “While inventory of homes of sales has jumped in recent months, it’s still from a very low base so we are still in very undersupplied market,” says Hepp. “However, I think sellers are seeing their opportunity to sell at the peak of price growth. If they don’t get the price they want, they may pull out their off them market. However, based on recent inventory numbers, I think sellers are seeing this period as a great opportunity to sell.”