Don’t call it a “buyer’s market.” Don’t call it a “correction.” But the fact is that a sobering change is taking shape in the housing market — an unmistakable cooling trend that defies an economy that is showing impressive growth, has the lowest unemployment rate in years and the highest home-equity levels on record.
Anyone thinking of selling or buying a home shouldn’t ignore it. Doing so could cost you money, time and maybe a great opportunity.
Call it a re-balancing. For years since the end of the financial crisis, prices in most markets have increased steadily — by single digits annually in most places, double digits in cities like Seattle, San Francisco, Denver and others that have vibrant employment growth plus persistent and deep shortages of homes for sale. Sellers were in the saddle.
That was then. This is now:
— Sales of existing and new homes have been sagging for half a year. According to data from the National Association of Realtors, resales have been dropping since the spring compared with year-earlier levels. At the end of the third quarter, resales were 2.4 percent below their level at the end of the same quarter in 2017. That’s despite growing inventories of homes available for sale in some areas, reversing the boom-time pattern of bidding wars that pushed prices to record levels and drove buyers batty.
— Mortgage rates hit their highest level in nearly eight years in early November — 5.15 percent for a conventional 30-year fixed-rate loan — according to the Mortgage Bankers Association. Lending Tree, an online network that pairs mortgage applicants with lenders, reported last week that the average annual percentage rate quoted to shoppers was 5.27 percent. Buyers with good scores between 680 and 719 were quoted 5.42 percent.
Though rates in the 5’s may sound reasonable to people who purchased or refinanced a home a decade ago, they are disturbingly high to millennials and other young buyers and magnify the affordability challenges they already face. Higher rates are also daunting to the millions of owners who have mortgages with rates in the mid-3-percent to 4-percent range. Rather than pursuing a move-up or downsizing purchase — requiring a new mortgage at today’s rates — many of them prefer to hunker down on the sidelines, further reducing sales activity.
— Sellers are cutting their list prices. According to research by realty brokerage Redfin, 28.7 percent of prices of homes listed for sale in major markets during the month ending October 14 saw reductions. That’s the highest share of homes with price drops recorded since Redfin began tracking this metric in 2010. One of the key reasons for the cuts: Demand by shoppers is down by more than 10 percent compared with a year earlier. Consumer psychology is shifting as well: A national survey by Fannie Mae released last week found that the net share of Americans who believe it’s a good time to buy has fallen to just 21 percent, while the net share who say it’s a good time to sell is 35 percent.
There are other signs of cooling underway that could be cited, but you get the point. The cycle has moved from seller-advantage to at least mildly purchaser-advantage in many parts of the U.S. Bear in mind, of course, that the cooling trend nationwide may not mean the same things are happening in your neighborhood. In fact, some cities with moderate housing costs are seeing price increases, homes selling above list, and tightening inventories. According to Redfin, nearly 40 percent of homes in Buffalo, New York, are selling above list at median prices 8.5 percent higher than last year’s. In Richmond, Virginia, 29 percent of homes are selling above list; in Akron, Ohio, 22 percent are selling for more than the original asking price, as are 23.2 percent in Greensboro, North Carolina.
So what does this mean to you as a potential seller or buyer? Top of the list: Speak to multiple realty professionals to get a good handle on where your local market is relative to the national cool-down. If you’re a seller, the key to your transaction will be getting your list pricing right. If you’re a buyer, take your time but keep in mind: If you shop diligently, this fall could be a smart time to catch a deal — a marked-down price on the house you really want.