Experts warn of housing slowdown, rate increases

The U.S. housing market — particularly in cutthroat areas like Seattle, Silicon Valley and Austin, Texas — appears to be headed for the broadest slowdown in years, analysts say. 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.

Existing- home sales dropped in June for a thirdstraight 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 percent 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. Shares of PulteGroup Inc. fell as much as 4.9 percent Thursday morning after the national homebuilder reported that orders had declined 1 percent from a year earlier, blaming rising mortgage rates.

“Home prices are plateauing,” said Ed Stansfield, chief property economist at Capital Economics Ltd. 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.”

Stansfield projects a 5 percent gain this year and a 3 percent increase in 2019. That compares with 10.7 percent 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, Calif., inventory was up 12 percent in June from a year earlier. It rose 24 percent in Seattle and 32 percent in Portland, Ore. Those big jumps are from low numbers, so the housing crunch is still a serious problem.

“Inventory has increased quite a bit,” said Seattle Redfin agent Shoshana Godwin. “We’re seeing less competition.”

Dustin Miller, an agent with Windermere Realty Trust in Portland, said he’s trying to manage sellers’ expectations, something he hasn’t had to do since the end of the previous 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.”

This new wariness was noticeable in the latest consumer-sentiment data from the University of Michigan. In its preliminary July survey, 65 percent of Americans said it’s a good time to buy a home, the lowest since 2008, when the economy was still in recession.

The homeownership rate in the second quarter was 64.3 percent, up from 63.7 percent a year earlier, according to U.S. Census Bureau data released Thursday.

“While there appears to be a slowdown in the growth rate of home sales and prices, it has not slowed rising homeownership,” Freddie Mac Chief Economist Sam Khater said in a statement — though he added that the rate is a full percentage point below the 50-year average, reflecting “the long-lasting scars from the Great Recession and the lopsided nature of this recovery.”

Homeownership still remains out of reach for many Americans, especially for first-time and younger buyers. For existing homes, the median price climbed in June to a record $276,900, while properties typically stayed on the market for 26 days, unchanged from the previous three months, according to the National Association of Realtors.

“Affordability is becoming a major headache for homebuyers,” said Lawrence Yun, the association’s chief economist. “You are seeing home sales rising in Alabama, where things are affordable. But in places like California, people aren’t buying.”

In addition, “no one knows how far and how fast” borrowing costs may rise as the Federal Reserve raises interest rates, Stansfield said. Lenders and borrowers alike are less likely to let credit spiral out of control than in 2005 and 2006. And with financing tighter and wage gains in check, “there’s not much scope for prices to continue to increase sustainably” at recent rates, he said.