The long list of housing headwinds is finally taking its toll on potential buyers. Housing demand fell 9.6 percent in June, compared with June 2017, according to a monthly index from Redfin. That is the largest decline since April 2016.
Red-hot home prices, rising mortgage interest rates, very few listings at the entry level and a high rate of student loan debt have weighed on buyers for a while, but a strong economy and growing employment had mitigated those factors. Now, however, a market stalemate is developing as rates and prices continue to rise, further weakening affordability.
As a result, the number of people requesting home tours fell 6.1 percent annually in June, according to Redfin’s index, which is seasonally adjusted and covers 15 large metropolitan housing markets. There were 15 percent fewer offers made on homes as well.
- Key Housing demand fell 9.6 percent in June, compared with June 2017, according to a monthly index from Redfin. That is the largest decline since April 2016
- The number of people requesting home tours fell 6.1 percent annually in June.
- While supply declined overall, Redfin noted a large increase in listings in some of the most supply-starved markets, which is where home prices have overheated most.
The supply of homes for sale increased very slightly nationally in June, according to the National Association of Realtors, but in Redfin’s major market index, the total number of homes for sale was 3.8 percent lower than a year ago and there were 1.6 percent fewer new listings.
Redfin also found a 3.8% decline in the total number of homes for sale and a 1.6% drop in the number of newly listed homes compared to June 2017 across the 15 metros covered by the index. Despite the declines, the report noted that these measures are moderating given the large increases in the for-sale inventory in some of the most supply-starved markets.
“As much-needed large inventory increases finally arrive in some of the hottest markets, buyers are taking the opportunity to be choosy, offering only on well-priced homes,” said Pete Ziemkiewicz, head of analytics at Redfin. “Buyers in Seattle are even keeping offer contingencies like the inspection intact, something that has been increasingly rare in recent years. With more homes to go around, buyers don’t need to bid as aggressively to win bidding wars, so prices, while still growing, are growing a lower rate, and home sales are slowing.”
New-home sales fell 5.3% in June to a seasonally adjusted annual rate of 631,000 — meaning they declined in two of the past three months. Despite that, the new-home market remains healthy. Sales are still up 2.4% from a year ago. The number of new single-family homes on the market increased slightly and is 10.3% higher than a year ago. It would take 5.7 months to sell through that inventory at today’s sales pace — the seventh consecutive month that the inventory-to-sales ratio has remained above five months. The median price for a new single-family home is declining in year-over-year terms, indicating that sales of entry-level homes are gradually increasing. New-home inventory is somewhat tight, but building activity is perking up. If this continues, price growth for new homes should continue to decline.
Existing-home sales continued to slide in June, but inventory improved slightly. These sales declined 0.6% from May to a seasonally adjusted rate of 5.38 million. Sales have slid for the past three months because of supply-side issues. Sales have dropped on a year-to-year basis for four consecutive months. Listings across the United States are up 0.5% from a year ago. Not a large gain, but up for the first time since 2015. In a quarter of the nation’s 500 largest metro areas, inventories are rising. That’s up 14% from a year ago. The supply of homes on the market, however, remains small relative to sales. With that somewhat scant stock, it would take 4.3 months at the current pace to sell through it. Properties stayed on the market for 26 days in June, unchanged from the last three months and down from 28 days a year ago.
Home values will continue to climb over the next year because of low inventory. The S&P CoreLogic Case-Shiller National Home Price Index rose 6.4% in May from a year ago, unchanged from the year-over-year gain in April. A moderate sales pace in relation to the scant housing stock is leading to high competition for properties and driving up prices across the nation. Western markets continue to see the largest gains, spurred on by booming populations and employment growth. Seattle saw the largest annual increase at 13.6%, followed by Las Vegas at 12.6% and San Francisco at 10.9%.
Mortgage rates have risen from their 2012 lows and will keep on climbing, to 4.8% on the average 30-year fixed-rate loan, from 4.54% today. Meanwhile, expect banks to remain stingy when it comes to home loans. Getting approved requires a substantially higher credit score now than a decade ago.