Could This Be the Worst Spring in Years for Home Sales?
By Laura Kusisto
The economy is booming, take-home pay is rising and millennials are getting married and having children. Despite all those homebuying catalysts, this could one of the weakest spring selling seasons in recent years.
The culprits: rising mortgage rates, a tax bill that reduces the incentives for homeownership and a growing weariness among first-buyers being priced out of the market -- all of which are expected to dampen demand for homes this year.
The next few months are a critical test of the housing market, as buyers look to get into contract on a home before summer vacations and the new school year. About 40% of the year's sales take place from March through June, according to the National Association of Realtors.
With sales volumes expected to be lackluster this year, the relentless price increases of the past few years could lose some steam. That could present opportunities for hardy buyers willing to brave rising interest rates, but make it slightly more difficult for sellers in some pricey markets.
"It's still going to be a tight market, but we're moving from an extremely tight market to one that has some wiggle room around the edges for buyers," said Daren Blomquist, a senior vice president at the housing-research firm Attom Data Solutions.
Lawrence Yun, chief economist at the National Association of Realtors, said he expects sales to be flat this spring from a year earlier. Roughly 2.06 million homes were sold between March and June 2017, up from about 2 million in the same period a year earlier, according to the National Association of Realtors.
Mr. Yun predicts sales will remain flat for all of 2018, due to inventory shortages and eroding affordability, as both prices and mortgage rates rise.
Existing home sales suffered their sharpest annual drop in three years in January, falling 4.8% from a year earlier to a seasonally adjusted annual rate of 5.38 million, according to the National Association of Realtors.
Pending home sales, an indicator of activity in the months to come, dipped 4.7% in January to their lowest level in more than three years, according to the Realtors. The median price, meanwhile, rose 5.8% from a year ago -- the 71st straight month of annual gains.
The top end of the market is slowing across the U.S., in part because of the tax overhaul, which capped the mortgage interest deduction as well as state and local tax deductions, disproportionately affecting higher-priced homes.
A homeowner with a median-priced home in the San Francisco area will receive $4,500 less in housing-related tax benefits in the first year of a 30-year mortgage this year, according to real-estate data company Apartment List. A homeowner in the same position in the New York metro area would receive $1,500 less annually. Chicago broker Bruce Glazer said both the high and low ends of the market are softening there.
Weakness at the high end is being driven by stock market volatility and the $10,000 cap the tax bill placed on deducting state and local property taxes. Chicago's upscale Near North neighborhood has almost 18 months of inventory of single-family homes priced over $1 million, according to Mr. Glazer, triple the six months of inventory that indicates a balanced market.
On the low end, buyers are being priced out of the market by rising interest rates, Mr. Glazer said. The rate for a 30-year mortgage has risen about half a percentage point this year to 4.43% from 3.95% in early January. For the median-priced U.S. home that translates to about $55 more a month, but in higher-cost markets the difference can be steeper.
"People are being a little more cautious than they were before," Mr. Glazer said. "Buyers have a number in mind, and they're willing to stick their ground more than in the past."
Mr. Glazer said he had one deal fall through and another fail to come together because the buyers were unwilling to budge on their offering price.
California also is experiencing a slowdown. January sales were down 7.6% from December and 2.9% lower than the same month a year earlier, according to the California Association of Realtors. Sales of homes under $300,000 declined 17% from a year earlier, suggesting the state's starter-home shortage is taking a toll.
"We're seeing new sales at a pause at the moment," said Steve White, president of the California Association of Realtors.
Kalena Masching, a Redfin agent in Silicon Valley, said she has seen a pickup in activity in recent weeks as buyers and sellers have digested the implications of the tax bill. Buyers are putting down larger down payments to bring the size of their mortgages below the new $750,000 cap. But that could be a challenge if the stock market continues to fluctuate, because buyers might want to hold on to more of their cash.
Ms. Masching said she is also hearing more from older buyers who are thinking about selling their homes and using the proceeds to retire out of state, prompted in part by the changes to the tax law. That could help increase inventory in the coming months, she said.
"I'm hoping it's going to be better. We never got any inventory last year," said Ms. Masching. "The big concern for our sellers is: Where are they going to go?"
Rhian Daniel, a 50 year old who works for a medical startup, and his wife have been looking for a home for about four years, both in the Bay Area and further afield. The couple have largely given up for the moment, and are considering eventually moving to a place like Dallas, with lower home prices and property taxes.
Mr. Daniel's wife, who is a psychotherapist, has student debt that limits the size of the mortgage they can get. The couple, who have a 16-month-old daughter, have looked homes further inland, in places like Tracy, Calif., but that would mean commuting up to four hours a day in horrendous traffic.
On top of that, "you're still paying a hell of a lot for not much," he said.
Write to Laura Kusisto at email@example.com
(END) Dow Jones Newswires
March 07, 2018 07:14 ET (12:14 GMT)Copyright (c) 2018 Dow Jones & Company, Inc.