One of the major drivers of November’s dropoff in the pace of existing-home sales is likely the implementation of the “Know Before You Owe” mortgage rule, commonly known as the TILA-RESPA Integrated Disclosure (TRID) rule, which went into effect on October 3.
NAR Chief Economist Lawrence Yun said the longer closing times may be delaying transactions until the following month, making the slowdown in existing-home sales for November temporary.
“It’s possible the longer timeframes pushed a latter portion of would-be November transactions into December,” says Yun. “As long as closing timeframes don’t rise even further, it's likely more sales will register to this month's total, and November's large dip will be more of an outlier.”
Auction.com noted that this decline was an unexpected blow in relation to their last estimate of a more moderate drop for November in the range of 5.2 to 5.54 million units.
Auction.com Chief Economist Peter Muoio provided fair warning that the drop in existing-home sales should not be taken out of context, noting that a healthy job market, wage gains, improved consumer confidence, and–at least through the end of 2015–low interest rates are still prevalent and typically lead to home sales.
“One potential cause for the November drop-off is the introduction of the CFPB’s ‘Know Before You Owe’ mortgage initiative, which could have created processing delays and pushed closings out a month or two. If this is the case, we could end up seeing home sales bounce back from the November low by early 2016," Muoio explained.
However, Auction.com points out that other factors such as low inventory and affordability concerns are contributing to the slowdown in home sales and could cause problems moving forward in 2016.
“Inventory of homes for sale continues to be extraordinarily low, since a very large number of homeowners are in negative or near-negative equity positions,” said Rick Sharga, Auction.com EVP. “What could pose more of an issue in 2016 is the combination of potentially higher interest rates and rising home prices making homes less affordable for potential buyers.”
Auction.com's report also showed that home prices continue to rise after four consecutive month-over-month decreases from the peak in the summer season. The Nowcast predicts that existing-home sale prices will fall between $212,156 and $234,488 in the month of December with a targeted price of $223,322. This will be a 7.3 percent year-over-year increase.
Last month, the NAR reported a 6.3 percent year-over-year increase in median existing home prices in November to $220,300. This number was well within the range of $214,057 and $236,589 that Auction.com predicted last month.