U.S. home sales – a key indicator of economic growth – is again showing weakness.

And the fact that home sales fell in December 2018 to their weakest levels in three years is rattling quite a few investors.  Some, including Sam Khater, chief economist at Freddie Mac believes we’re in a “mental recession.”

“Looking ahead to 2019, expect weaker existing-homes sales as the new year ushers in a government shutdown and worsening economic uncertainty,” said Cheryl Young, a senior economist at Trulia, as quoted by Time.

And, according to Lawrence Yun, chief economist for the National Association of Realtors (NAR), the partial government shutdown could hurt sales in coming months by up to 1%.

Existing Home Sales Fell 10.3% Year over Year

Existing-home sales were down 6.4% for December to a seasonally adjusted rate of 4.99 million.  Making that worse, year-over-year sales are down 10.3%. Thanks in part to market volatility, rising interest rates, government shutdown concerns, and supply.

The slowdown also appears to have extended itself into the new-home market, too.

While we haven’t seen specific proof of this from the Commerce Department, given the government shutdown, The Wall Street Journal (WSJ) reports that new-home sales fell 10.3% in the South, 13.4% in the West, and more than 16% in the Northeast.

Even with Strong Economic Growth…

Unfortunately, strong U.S. economic growth and low unemployment may not be enough to keep home sales from potentially falling further.  Even a drop in the 30-year fixed mortgage rate did not boost sales.

“Federal Reserve officials were already on the lookout for signs that interest-rate-sensitive sectors of the economy were coming under stress, and right now home sales are the smoking gun that the Fed’s rate hikes are starting to bite and slow the broader economy down,” said Chris Rupkey, chief financial economist at MUFG, as quoted by WSJ.

However, there is some potentially good news for housing...

One, we may soon begin to see a decrease in market volatility, as tensions over the U.S.-China trade war begin to show signs of abating.

Two, the Federal Reserve may not be as aggressive with its rate hikes as previously thought.  In fact, the Fed has noted it would be “patient” when it comes to weighing future hikes.

Three, once the partial government shutdown is over, we could see an increase in housing transactions.  According to NAR President John Smaby, “Once the government is fully reopened, I am hopeful that housing transactions will increase.”

At the moment, it’s a wait-and-see situation with the volatile market.

Be sure to stay tuned to The Cheap Investor for more on this developing story.