Do you feel that hint of a chill starting to swirl through the housing market? The cooling is slight but it’s for real. Home prices are not rising as fast in most metropolitan areas as they did earlier this year and much of 2012. Multiple bid competitions — fierce in many places this spring and late last year — aren’t as intense. Inventories of homes for sale have increased this summer, reversing near droughts of listings that helped fuel higher prices.
Add in rising mortgage rates, and you’ve got a distinct, measurable momentum shift in the pace of the housing recovery. The recovery is still well under way — it’s just not as effervescent as it once was.
Consider some of the key numbers:
• Asking prices on homes listed for sale declined by one-third of a percent in July, the first drop on a monthly basis since last November, according to data compiled by Trulia.com. Quarter-to-quarter data through July confirm the moderating trend line.
• Pending home sales—– under contract but not yet closed — dropped by four-tenths of a percent in June, according to the National Association of Realtors. Resales of houses in June dipped by 1.2 percent.
• Inventories of homes listed for sale rose in a number of the hottest markets recently, after hovering near record lows for a year or more. Low inventories stoke buyer competition and bidding wars that can send prices up sharply. More plentiful inventories give buyers more to choose from and tend to calm things down. According to data compiled by realtor.com from multiple listing services around the country, inventories of homes listed for sale rose 7.8 percent during July in Los Angeles; 12.5 percent in San Diego; 8.3 percent in Seattle; 6.5 percent in Tampa-St. Petersburg and 4.5 percent in Boston. Trulia estimates that nationwide inventories of homes for sale are up 6 percent since January.
• Not as many potential buyers are out shopping, and it’s not just because it’s summer and everybody is at the beach. Redfin, the online real estate brokerage, measured a 3.5 percent drop in home showings by agents last month. That compares with a 3.1 percent monthly gain a year earlier. Not surprisingly, signed contract offers were down by 11 percent in July compared with June. Plus the number of multiple bid competitions is dropping in major markets— down by 5.3 percentage points from June to July alone. In San Diego, the monthly decline exceeded 10 percent. Redfin says it’s detecting signs of “buyer fatigue.”
• Affordability is beginning to erode as the result of cumulative home price increases plus higher mortgage interest rates. The National Association of Home Builders’ housing opportunity index covering 225 metropolitan areas, released last week, found affordability down by 4.4 percent from the previous quarter. The index measures the percentage of households who can afford to purchase the median priced home with a 10 percent down payment.
None of this is surprising or alarming to housing and mortgage economists who track market movements. Frank Nothaft, chief economist for Freddie Mac, the big mortgage investor, believes the recovery is simply moving into a “second, more sustainable” phase. During the last 18 months, he says, “we saw eye popping numbers (on prices and sales),” though the outsized increases were coming off the lows of a deep recession and housing bust.
But price gains in the double digits that were commonplace in coastal California, Phoenix, Las Vegas, Washington, D.C., and parts of Florida starting 24 months ago have gradually begun to self-correct. When prices get out of reach of growing percentages of borrowers, demand slacks off and price increases slow down. That’s the trend taking hold now, according to Nothaft. Sales should continue to see “healthy” growth and prices should continue to rise, “but the percentages will be less.”
Jed Kolko, chief economist for Trulia, says that the second phase of the recovery actually started earlier this year, “when inventories began bottoming out.” Kolko sees the current, more moderate phase continuing for what could be an extended period. But the true housing market potential won’t fully be realized, he says, until the next phase: That’s when the consumers who have been missing in action thus far — younger, first-time buyers stymied by the economy and student loan debt burdens and often still living with their parents — finally jump into the marketplace and start buying homes.
Kenneth Harney is executive director of the National Real Estate Development Center.