Has the housing market peaked?
Home prices,mortgage rates are rising faster than incomes, which could signal slowdown
Is the housing market beginning to run out of steam?
After a long run of strong sales and rapid price appreciation, signs are beginning to point to a slowdown as home prices advance faster than incomes — a development that could be intensified by rising mortgage rates. Several recent reports from the government, analysts and real estate companies are starting to suggest that the market might have reached its peak.
The Commerce Department on Wednesday reported that that new home sales fell in September to the lowest level in two years, while investment analysts lowered their ratings on the stock on three of the nation’s biggest home builders, Lennar of Miami, Meritage of Scottsdale, Ariz., and KB Home of Los Angeles, citing a likely slowdown in the pace of sales. The government-sponsored mortgage finance company Freddie Mac reported Thursday that mortgage rates ticked up again last week, rising to an average of about 4.9 percent, and were likely to climb higher.
“We expect rates to continue to rise, which will put downward pressure on home buying activity,” Freddie Mac said.
In Houston, September home sales fell from the previous year for the first time in five months, although real estate agents and analysts said the figure were skewed by Hurricane Harvey, which hit the region in late August, pushed sales into the next month and inflated September 2017 figures. But at least one real estate agent said he believed higher mortgage rates were slowing sales.
Sean Cerelli, a real estate agent at Connect Realty, said he has seen higher mortgage rates, which increase monthly payments and cut some people out of the market, are affecting sales of homes listed for more than $400,000. “I’m noticing are houses over that amount are usually staying on the market longer,” he said. “And I’m seeing more price decreases.”
The housing market in Houston and across the country has been on a tear in recent years as it recovered from the housing bust of a decade ago and benefited from a strong economy, falling unemployment and low interest rates. Houston, for example, experienced record home sales in May and July.
Strong demand and low mortgages rates have pushed home prices higher and higher. Average new-home prices increased in four major Texas markets in September, with prices edging up 0.7 percent to $357,364 in the Houston area from August according to a report released by Dallas-based HomesUSA.com, a marketing company for home builders that tracks 12-month rolling averages of new-home prices.
Nationwide, home prices have appreciated rapidly, with yearover-year increases of over 5 percent every month since August 2016, according to the S&P Case-Shiller National Index, a closely followed measure of the housing market. “Home prices continue to rack up gains two to three times greater than the inflation rate,” said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices.
But those relentlessly climbing prices have sowed the seeds of slowdown in the market, likely squeezing people out of the housing market, particularly as mortgage rates rise. More people, meanwhile, believe homeownership has moved out of reach.
A survey conducted in August by Freddie Mac found that the majority of renters do not expect to buy anytime soon. Seventy-eight percent of renters polled in August perceived owning as less affordable than renting, and most people said affordability is the main factor preventing them from buying.
Two-thirds of renters believe their next move will be to another rental. Only six months earlier, almost half thought their next move would be to home they would own.
In another sign the prices are outpacing income, a study by Zillow comparing median incomes to median home prices found that people must save longer to come up with a down payment than they did 30 years ago. In Houston, it takes five months longer than it did in 1988.
It could be worse, however — if you live in California. In San Jose, it now takes a medianincome couple 13.3 more years longer to save up for a medianincome home than it did 30 years ago in Los Angeles, it takes 9.5 more years and in San Francisco, it takes 8.5 additional years.
All this could add up to fewer buyers in the real estate market, which ultimately means fewer sales. By all reports, it’s still a sellers’ market. But buyers might be getting back some of their clout.