After months of essentially the same story—bidding wars, rising prices and desperate buyers—Seattle Times reports that we just may be seeing the first signs of a market cooldown, as “buyers are squeezed by rising mortgage rates and by prices climbing about twice as fast as incomes.” As famed economist Robert Shiller says, “this could be the very beginning of a turning point,” but he also emphasized that it is simply too early to really make the call.
As the Times writes, a number of data points released in recent weeks shows evidence of a slowdown, with decreasing home sales for three months in a row, inventory gains as “buyers move to the sidelines,” and slowing price increase rates that were once in the double-digits on a year-over-year basis and are now hovering at 6.4 percent (as of May 2018).
In markets such as Seattle, inventory has increased exponentially but it isn’t due to a large number of new homes entering the market, but rather that homes are sitting on the market for longer; buyers are taking their time. The article says that as of June 2018, San Jose inventory was up 12% year-over-year, Seattle was up 24% and Portland was up by an eye-popping 32-percent. It should be noted that these gains are from very low numbers, “so the housing crunch is still a serious problem.”
While some have questioned whether this represents another housing bubble, market experts say that isn’t the case, because “the housing sector has strong support from a healthy labor market and steady economic growth, which indicates a stabilizing trend for home prices rather than anything close to the experience of the crisis, when property values plunged.” And as Freddie Mac Chief Economist Sam Khater noted in a statement, “while there appears to be a slowdown in the growth rate of home sales and prices, it has not slowed rising homeownership.”
The latest S&P CoreLogic Case-Shiller report, which looked at housing market data from April 2018, hinted at a softening, as the 20-city composite index placed property value increases at 6.6 percent on a year-over-year basis. “After seasonal adjustments, the gauge posted its smallest property increase in 10 months,” writes the Times, however Seattle posted a 13.1 percent increase, leading the nation in home price growth with a rate “largely unchanged from the increases seen over the course of 2018.”
Affordability is a growing issue and may have put some buyers on hold, particularly young and first-timers, as home prices rise. In addition, the Fed has already raised interest rates in 2018 with plans to reach a “neutral” status—which market experts pin somewhere between 2.75- and 3-percent—by spring 2019.