Buyers are ghosting the housing market — here’s why 

Though the lack of government-released economic data amid the ongoing shutdown is making it difficult to gauge the health of the economy overall, one thing is clear: National homebuying demand is weak.

Even with mortgage rates bouncing around the lowest levels of the year and builders growing more aggressive on incentives, applications for loans continue to slow down, according to the Mortgage Bankers Association. For the week ending on Oct. 31, overall applications dropped 1.9% from the week before, while purchase applications decreased by 1%.

But mortgage rates remain attractive compared to earlier this year. The 30-year fixed-rate mortgage averaged 6.22% as of Nov. 6, according to Freddie Mac. While up from 6.17% the week prior, the rate remains among the lowest levels of the past 12 months.

Job worries outweigh lower rates

It appears that general uncertainty about the economy is pulling on buyers more than lower mortgage rates.

"The recent government shutdown has weighed on buyer sentiment, particularly in federal-heavy markets and metros tied closely to public-sector employment," said Hannah Jones, senior economic research analyst at Realtor.com. "As the housing market moves into late fall, both buyers and sellers often turn their focus to the holidays and postpone major decisions until the new year."

As buyers stay sidelined, builders are dealing with a glut of completed, unsold new homes. D.R. Horton, the builder of about 15% of all new homes in the U.S., is offering buyers 3.99% mortgages and has reduced its average selling price by 3% in the past year, while Lennar has offered incentives worth over $60,000 on its average home sale in an attempt to interest buyers, according to the Wall Street Journal.

Despite low demand, prices keep rising

Even with buyer demand lacking, home prices continued to rise in 77% of metro markets in the third quarter, according to the National Association of Realtors. The Northeast had the biggest year-over-year price increase at 6%, followed by the Midwest (up 4.2%). The South was basically flat, rising just 0.5%, while prices in the West actually ticked down 0.1%.

Though home prices were up in most areas, overall affordability improved because of the recent decline in mortgage rates, NAR's report noted.

What's happening with employment?

Job market fluctuations play into buyer uncertainty. Markets that employ large numbers of federal workers, such as Washington, D.C., are already seeing a slowdown in activity due to the shutdown and government employee layoffs that occurred earlier this year. But it's less clear what's happening with the private sector. 

Lesser-known private jobs reports paint a complicated picture. The ADP's latest report released on Nov. 5 showed private sector jobs rising 42,000 in October, above what was expected. However, data from Challenger, Gray & Christmas indicates employers have announced 1.1 million layoffs so far this year, with October job cuts alone exceeding 150,000 — the highest level for the month in over two decades. Other reports indicate job market stability.

"Together, the alternative data point to moderation, but the lack of an official 'source of truth' makes it hard to know how much weight to assign to any one signal," said Jake Krimmel, senior economist at Realtor.com.

With the absence of two government-released jobs reports amid what has become the longest federal government shutdown in history, "both the Fed and the housing market are moving cautiously, waiting for clearer data on the economy today and clearer signals on where we are headed."

Fewer homes hitting the market

In terms of inventory, the seasonal decline has begun, according to Mike Simonsen, chief economist at Compass. With the holidays approaching, there isn't much market incentive to sell now, and new listings have grown sluggish.

"Sellers don't have to sell and are often choosing not to," Simonsen said.