US housing market looks headed for worst slowdown in years
Existing-home sales drop in June for a third straight month, while purchases of new homes are at their slowest pace in eight months
They were fed up with Seattle’s home bidding wars. They were only in their late 20s but had already lost two battles and were ready to renew with their landlord. Then, in May, their agent called.
Suddenly, Redfin’s Shoshana Godwin told the couple, sellers were getting jumpy, even here in the hottest of markets. Homes that should have vanished in days were sitting on the market for weeks. There was a three-bedroom fixer-upper just north of the city going for US$550,000, down from more than US$600,000. They made the leap in early June and had closed by the end of the month, for list price.
The US housing market – particularly in cutthroat areas like Seattle, Silicon Valley and Austin, Texas – appears to be headed for the broadest slowdown in years. Buyers are getting squeezed by rising mortgage rates and by prices climbing about twice as fast as incomes, and there’s only so far they can stretch.
“This could be the very beginning of a turning point,” said Robert Shiller, a Nobel Prize-winning economist who is famed for warning of the dot-com and housing bubbles, in an interview. He stressed that he isn’t ready to make that call yet.
A slew of figures released this week gives ample evidence of at least a cooling.
Existing-home sales dropped in June for a third straight month. Purchases of new homes are at their slowest pace in eight months. Inventory, which plunged for years, has begun to grow again as buyers move to the sidelines, sapping the fuel for surging home values. Prices for existing homes climbed 6.4 per cent in May, the smallest year-over-year gain since early 2017, and have gained the least over three months since 2012, according to the Federal Housing Finance Agency.
“Home prices are plateauing,” said Ed Stansfield, chief property economist at Capital Economics in London. “People are saying: Let’s just bide our time, there’s no great rush. If we wait six or nine months we’re not going to lose out on getting a foot on the ladder.”
That means “we’re now looking at a period in which prices move more or less sideways, or increase no more quickly than growth in incomes, over the next few years”, according to Stansfield.
Stansfield projects a 5 per cent gain this year and a 3 per cent increase in 2019. That compares with 10.7 per cent in 2005, shortly before the crash.
Some of the most expensive markets, where sales are falling under the weight of prices, are now seeing substantial increases in supply, according to Redfin Corp. In San Jose, California, inventory was up 12 per cent in June from a year earlier. It rose 24 per cent in Seattle and 32 per cent in Portland, Oregon. Those big jumps are from low numbers, so the housing crunch is still a serious problem.
“Inventory has increased quite a bit,” Godwin, the Seattle agent, said. “We’re seeing less competition.”
Dustin Miller, an agent with Windermere Realty Trust in Portland, said he was trying to manage sellers’ expectations, something he hasn’t had to do since the end of the last housing boom. One customer, a baby boomer moving to a new home across the state, expected to have buyers fighting over her house. She got one bid, below her asking price.
“Buyers want to shop and take some time, as opposed to having to rush and throw offers in,” Miller said. “It’s the market correcting itself. At some point, you hit a peak of momentum, and then things level off.”