What’s the Matter with the Housing Market?
“Another in a string of disappointing housing reports,” read the headline from IHS Markit. The headline was referring strictly to data pointing to downwardly revised three-month tallies on new home sales and a decline in single-family construction permits across 17 states. It had nothing to do with Redfin’s reports this week on pricing, which told a similar tale of indicators pointing in the wrong direction.
Redfin reported that although pricing for both new and existing homes was up year over year in August, the 4.7% increase was the lowest annual gain in four years, and that the rate of Y-O-Y increases has been slowing for the past six months. Separately, the company reported that during the four weeks that ended Sept. 16, 26.6% of sellers dropped their asking prices, the highest percentage since Redfin began tracking this metric in 2009, and that August sales were down 2.4% from a year ago.
“The economy is strong,” said IHS Markit’s Patrick Newport. “Labor markets are solid. Yet, new home sales and single-family housing starts and permits have stalled. How can this be?”
Part of the problem, Newport said, is affordability. He cited the 65-basis point climb in the 30-year mortgage rate over the course of 2018. Currently, it’s at levels last seen in May 2011.
Also on the rise are home prices, as measured by the Federal Finance Housing Agency. They were higher from a year ago during the second quarter in all 50 states , Newport reported.
“Lumber prices in the summer were at an all-time high; and the tariffs on steel, aluminum and Canadian Softwood Lumber have raised the costs of building,” he added. “This has choked off demand. On the supply side, rising construction costs, a lack of buildable lots, and a shortage of skilled labor have reduced incentives to build new homes.”
At Redfin, senior economist Taylor Marr cited a factor that will be familiar to commercial real estate participants: an expectations gap when it comes to pricing. “While sale prices moderate, new listing prices keep accelerating,” said Marr. “This mismatch between seller expectations and reality is fueling an increase in price drops in metros across the country.”
Further, said Marr, “there are some early signs of a softening market, and the increase in price drops may be another indicator that sellers are going to have trouble getting the prices, and the bidding wars, that they may have just months ago. Instead, many are finding their homes are sitting on the market without much interest until they start reducing their prices.”
For comments, questions or concerns, please contact Paul Bubny
- ◦Economy
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