Tuesday, June 18, 2019

US Home Sales Data Reports Homes Prices Are No Longer Rising


There are growing signs that U.S. home prices are no longer rising. If this is indeed the case, now is the time for sellers or prospective sellers to take a good look at the state of housing markets around the country.  To make smart decisions, home sellers as well as buyers need to find out whether home price gains are simply slowing or whether housing markets are actually topping out. 
An excellent publication,US Homes Sales Report, published by real-estate data firm Attom Data Solutions, gives a detailed look at conditions in major U.S. housing markets. This quarterly report provides data on the actual gross profit that sellers pocketed in 124 housing markets nationwide.  It tracks every home sold in that metro and compares the price to what the seller previously paid for the house. An average is then taken for all the homes sold in that quarter. The result is the average gross profit in each metro before commissions are deducted.

This data is extremely useful for prospective sellers because it tells them what kind of profit they can expect should they decide to sell their home. Sellers need this information to determine if they will have enough net profit, whether they’re looking to trade up or downsize.
We compiled data from Attom Data's US Home Sales Report for the first quarter of 2019 into a table highlighting 12 major U.S. markets and what they reveal about home sales at four different points in time. These 12 major metros were chosen for geographic diversity.
The percentage figures in the far right column show what the average gross profit was for homeowners who sold in the first quarter of 2019.  For example, in what had been the hottest market of them all — San Jose, Calif. (Silicon Valley) — homeowners who sold in the first quarter of this year realized an average gross profit of 84%. Yet had they sold a year earlier, the average gross profit would have been 103%. So the average gross profit on homes sold in San Jose has slipped almost 20 percentage points over the past year. In fact, the gross profit figure in this metro peaked at 114% in the second quarter of 2018.  
The second-hottest market in the nation was probably Seattle. Owners there who sold last quarter had an average gross profit of 63%. A year earlier, their profit would have been 72%. Gross profit in Seattle peaked at 78% in the second quarter of 2018.  Like San Jose, the average gross profit in Seattle has declined for three consecutive quarters. 
In all except two of the metros covered in the table, homeowners would almost certainly have been better off had they sold a year ago rather than in this year's first quarter.  
Yet what if these quarter-to-quarter comparisons are not trustworthy, since so much depends on the average length of time that sellers owned their property? That is a fair objection.  But consider this: Attom Data Solutions also publishes a quarterly report that calculates the average time sellers held their property. For the nation as a whole, the average tenure of ownership for sellers in the first quarter of 2019 was eight years. A year earlier, it was 7 ¾ years. We can reasonably conclude, then, that many sellers in the first quarter of 2019 bought their home around 2011.  
For most major metros, average prices in 2011 were lower than in 2010, when many who sold in 2018 bought their home. You might then assume that the average gross profit for the sellers in 2019 should have been greater than those who sold a year ago. Yet as the table shows, that did not happen in 10 of the highlighted 12 metros.
Five other key measures suggest that housing markets could be topping:
•     Home sales have been declining in many major metros
•      Listings of homes for sale have soared in the hottest markets
•      Reductions in asking prices have been increasing
•      Bidding wars in hot metros a year ago have all but disappeared
•     Standards for underwriting mortgages have plunged in the past year
Real estate brokerage Redfin's most recent housing data is revealing. According to Redfin, the volume of home sales has been declining in major metros for almost a year. For example, many hot California metros showed double-digit sales declines in February and March from a year earlier.  In affluent Orange County, first-quarter home sales fell 20% from a year earlier and were the lowest since the housing collapse began in 2008.  Though not dangerous by itself, the weakness in home sales is a red flag.
Worse, the number of homes for sale is soaring in some of the hottest markets.  In March 2019, for example, listings were up 104% in San Jose from a year earlier, 83% in Seattle, 30% in Portland, and 24% in San Francisco.
Tumbling home sales along with substantial growth in the number of listings is a dangerous combination. If this trend continues, many sellers will be forced to lower their asking price.  This has already occurred in more expensive parts of Los Angeles and Fairfield County, Conn. Reductions in asking prices have also increased in New York City. Grant Long, senior economist at New York City online real estate marketplace StreetEasy, predicted in March: “When the inevitable wave of new inventory hits the [New York City] market this spring, interested buyers should expect to see an uptick in price cuts as the market forces ambitious sellers to accept reality.”
A fourth warning sign: In early May, Redfin reported that bidding wars — where sellers receive multiple offers on their property — have plunged across the U.S. in the past 12 months. In April 2018, Redfin agents had multiple offers on 60% of the homes they were showing. That figure collapsed to 15% by April 2019. Even the hot San Francisco Bay Area market saw a sharp drop in multiple offers, to 22% from 75%.  
Fifth, the standards for underwriting mortgages have sunk almost as low as what existed during the height of the property bubble madness in 2005-07. Because of these relaxed underwriting standards, about 3.3 million mortgages were originated between 2014 and 2018 that would have been denied under the tighter standards, the Urban Institute reports. Perhaps Fannie Mae and Freddie Mac, the dominant players in U.S. mortgage markets, decided that unless they lowered their standards, some housing markets might suffer due to a lack of qualified buyers.
Advice for home sellers and prospective sellers
A seller with an active listing do should consider that their local market is softer than they believe and that their asking price is too high. If the traffic of prospective buyers has been slow and the home has not sold for several months, they should talk with their broker about a price reduction. In a weakening market, this may be the only way to sell the house.
What about homeowners who postponed listing their house as prices rose? They need to reconsider this decision. If they believe that home prices may be heading lower for more than a brief period, the prudent action may be to put the home on the market now — before their market weakens further.  
Keep in mind that I am not saying home prices are about to plunge as they did in 2008-2011. Yet prudence would suggest that wise homeowners adjust their expectations and plans, in order to deal with any changes in their local housing market.

Sunday, June 2, 2019

9 US Housing Markets Where Home Prices Have "Likely Peaked"

Earlier this month, the real estate research team at Zillow published a report that showed U.S. home prices dropped from March to April 2019. That was the first month-over-month drop in home values since February of 2012.
According to the company’s data, a typical home in the U.S. now costs around $226,800. That was the median value, nationwide, at the time this report was published. (Of course, some real estate markets are much more expensive than that.) 
As of summer 2019, home prices in many housing markets across the country are now slowing, leveling off, or even dropping.

Home Prices Have ‘Likely Peaked’ in These Cities

The report also stated that house values in 14 real estate markets across the country — including Philadelphia, Boston, San Francisco and Seattle — have already reached their price peaks. 
According to the press release that announced these findings:
“Home values have likely peaked in Los Angeles, Philadelphia, Houston, Miami, Boston, San Francisco, Seattle, San Diego, St. Louis, Tampa, Baltimore, Pittsburgh, Portland and San Jose.”
It’s not surprising to see some of these cities singled out in the report. Back in March, we mentioned that home prices in Seattle appeared to be coming down from a peak. And Seattle was one of the cities mentioned in the Zillow report.
In fact, cooling trends can be seen in many of the other housing markets on this list. A couple of examples: Following a year of steady gains, home prices in Philadelphia have pumped the brakes. The median house value in San Jose, California (another city on the list above) has dropped as well.
A Closer Look at These Housing Markets
We looked at some of the major cities where Zillow said home prices had peaked, to get a better sense of what is happening in those housing markets. Here are some highlights:
Houston, Texas
According to a recent report, most of the homes listed for sale in Houston end up selling below their original list prices. This shows how much the local housing market has cooled, since its red-hot days a few years ago. Home-price growth in the area has slowed down as well. 
But it might be a bit premature to say that the Houston housing market has peaked. Current conditions will likely produce smaller home-price gains in 2020, compared to the past couple of years. But significant population growth in this metro area could put upward pressure on house values well into next year.
Los Angeles, California
Following a year of modest growth, home prices within the Los Angeles real estate market have screeched to a halt. According to a May 2019 update from Zillow: “Los Angeles home values have gone up 2.2% over the past year and Zillow predicts they will fall -0.1% within the next year.” 
Similar cooling trends can be seen in other parts of Southern California. In this part of the country, housing affordability is a major contributing factors. 
In many of these California real estate markets — particularly the major coastal cities — a person earning an average income for the area can scarcely afford to buy a median-priced home. This has reduced housing demand and, in turn, led to smaller price gains.
Miami, Florida
According to an April 2019 report from Knock (the home trade-in company), Miami’s housing market had the highest percentage of homes sold below the original listing price during Q1 2019. At that time, “88% of homes sold below original list prices,” the report said. 
This is just one indicator that suggests the Miami real estate market is cooling — and starting to favor buyers over sellers. Home prices in the area are expected to level off between now and 2020. 
Inventory has a lot to do with this. The Miami housing market currently has more supply (homes listed for sale) than most other major cities across the country. This gives buyers more options to choose from, but it also takes some of the steam out of home-price appreciation.
Portland, Oregon
Portland was one of the western housing markets that appreciated rapidly after the recession. Limited inventory and strong demand drove home prices up at a rapid pace. 
But a lot has changed since then. Portland was also one of the first western real estate markets to go through a cooling phase, which you can see clearly in the chart below.
House values in this market began to level off in 2017, and the median home price has actually declined a bit since then. So it’s safe to say that the Portland housing market has already peaked — at least in terms of pricing.
San Diego, California
As a former resident, I can tell you that San Diego is a nice place to live. The weather’s great almost year-round, and there’s plenty to see and do. That’s why the city’s population continues to grow at a steady pace.
But the San Diego real estate market is expensive, and it has only gotten pricier over the past few years. 
Consider the evidence: The median home value in San Diego rose from around $370,000 in 2012 to $633,000 in 2019. As a result, there are fewer home buyers with the means to make a purchase. And this had led to a slowdown in price growth. So it’s no surprise to see the San Diego mentioned among the housing markets that have “likely peaked.”
San Francisco, California
Will one of the nation’s most expensive real estate markets actually depreciate between now and 2020? It seems possible. 
After years of steady home-price gains, the San Francisco housing market has cooled down. Some forecasters are now predicting that house values in the city will level off, or even drop a bit, over the next year.
But don’t let that fool you. The San Francisco real estate market is still highly competitive right now. (Is it ever not?) Properties in the city are selling fast, due to limited inventory and steady demand from buyers.
San Jose, California
What can we say about San Jose? This real estate market is an anomaly in more ways than one. Here’s the short version: Tech workers have flocked to the Silicon Valley for high-paying jobs at places like Apple, Facebook and Google. And home prices in the area have skyrocketed as a result.
A lot of residents outside the tech industry, however, have been priced out of the housing market. For instance, a recent report from Trulia showed that San Jose is the toughest market in the US for educators.
Over the past few years, inventory shortages within the San Jose real estate market led to bidding wars and offers well above the asking price. The city’s median home value shot up to $1.1 million in October 2018. 
But prices can only rise so far before buyers start to pull back. And that’s exactly what is happening in San Jose and surrounding areas. Home prices there are now falling, as inventory accumulates. It seems that the bubble has burst.
Seattle, Washington
The housing market in Seattle suffered from a severe inventory shortage from 2015 to 2017, one of the worst in the country. And while inventory has increased since then, it’s still pretty tight. 
This supply shortage — combined with strong demand from investors — sent prices soaring. Seattle’s median home value shot up from a fairly affordable $350,000 in 2011, to a whopping $750,000 in 2018. As you might have guessed, this has led to affordability issues for a large segment of the populace. 
A predictable pattern followed: Buyers pulled back, and this drop in demand had a cooling effect on house values. The median home price in Seattle has dropped over the past few months, and the team at Zillow predicts a continuation of this downward trend into 2020.
Tampa, Florida
The Tampa real estate market has also seen an increase in the number of homes selling below the original list price. According to the Knock report mentioned earlier, about 78% of properties sold during the first quarter of 2019 went for less than the list price. 
The Tampa housing market is also experiencing much slower price growth today, compared to recent years. Following a gain of 5.5% over the past 12 months, Zillow predicts the median home value for Tampa “will rise 1.6% within the next year” (into May 2020).