Are Home Values Falling or 'Softening'?
There is a lot of confusion in the market right now, and the goal of this month’s report is to eliminate some of that confusion, and give you the information that you need to really understand what’s taking place in the market today.
Yes, it's true, in some places the market is starting to slow up. But you should also understand that there is still a significant amount of foot traffic. This is how many people are actually out looking at houses right now. This report has been done by NAR for years now, and it’s a very good indicator of future sales. We can see that the dark bar is 2017, and the lighter bars are 2018. So far, every single month this year, buyer traffic has been greater than it was the same month last year.
Previous articles explained the decrease in home sales being a result of low housing inventory and escalating housing prices a consequence of that inventory. Current renters still want to be homeowners and here's why...
Once renters get a house and they have a fixed rate mortgage, they pretty much lock in their housing expense for the next 30 years. Taxes are going to go up. Some of their insurance premiums might go up. But, basically, they’ve locked in. Some people may feel that with prices the way they are, people really can’t afford to purchase. They have to rent. And in some market places - that’s absolutely true. However, it’s still 26.3 percent cheaper to own a house than to rent a house in this country right now.
Obviously, certain markets are different than other markets and one side of town is different than the other side of town, but we’re looking at a national number. That number is decreasing. Just going back two years, it was 41 percent cheaper to own a house than to rent one. So, as prices go up and interest rates go up, obviously the advantage to owning, from a financial standpoint, is slowing. The good news is that housing supply is picking up. So, we’re starting to see some easing of housing prices.
If we go all the way back for the last 37 consecutive months, the amount of inventory available each month was below the same amount of inventory the same month last year. Over the last three months, June, July, and August, we’re seeing that trend is reversing. We’re starting to see more inventory than we did the same month last year, (remember, there was still a shortage last year) and that’s a good sign. What that means is that all those buyers who couldn’t find a home to buy -now can.
So, basically - sales are down because there isn’t enough inventory. The buyers are still out there, meaning that properly priced home are going to sell. Nationally, new listings jumped 2.7 percent year over year, the largest increase since 2013. This inventory is going to get absorbed very quickly with the buyers that are out there. Unsold inventory is still below the normal healthy average of six percent, although it now at 4.3 percent as opposed to 4.1 present last month. New home construction is not keeping up to satisfy demand. But, the good news is that new home construction starts are up 9.4 percent year over year. Completions are up 11.2 percent year over year. And sales of newly constructed homes are up 12.7 percent year over year.
Don't be confused by the headlines. As inventory starts to climb back into the healthy six month range, housing prices will begin to soften and housing sales will normalize. There will be fewer bidding wars, causing seller's to expect less for their homes. That doesn't mean their houses are depreciating. It just means that the house they bought for $250,000 six years ago might only be worth $300,000 now instead of $325,000. As more buyers are able to find a home that suits them at a price they can afford, fewer buyers are going to show up to open houses, offers will take longer to come in and they will be far in between. The softening of housing prices means that the level of appreciation is decelerating. If we’ve had six, seven percent appreciation over the last couple of years and we go to four and five percent appreciation, it’s decelerating the rate of appreciation. It doesn’t mean houses are falling in value. It doesn’t mean we’re heading toward depreciation. It doesn’t mean the market has crashed.
If you have any questions about this article, or would like to have a conversation about what your home is worth, please feel free to contact me at [email protected].
