Data show home prices aren’t rising as fast as they did earlier this year, and multiple-bid competitions aren’t as intense as inventories of homes increase.
WASHINGTON — Do you feel that hint of a chill starting to swirl through the housing market? The cooling is slight, but it’s 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 in many markets. 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 nationwide housing recovery. The revival is still well underway — it’s just not as effervescent.
Consider some key numbers:
•Asking prices declined 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 — in escrow but not yet closed — dropped four-tenths of a percent in June, according to the National Assn. of Realtors. Resales of houses in June declined 1.2%.
•Inventory 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. 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 rose 7.8% during July in Los Angeles, 12.5% in San Diego, 8.3% in Seattle, 6.5% in Tampa–St. Petersburg, Fla., and 4.5% in Boston. Trulia estimates that nationwide inventories are up 6% since January.
•Not as many potential buyers are out shopping, and it’s not just because everybody is at the beach. Redfin, the online real estate brokerage, measured a 3.5% drop in home showings by agents last month. That contrasts with a 3.1% monthly gain a year earlier. Not surprisingly, signed offers were down 11% in July compared with June. Plus, the number of multiple-bid competitions is dropping in major markets — down 5.3 percentage points from June to July alone. In San Diego, the monthly decline exceeded 10%.
•Affordability is beginning to erode as the result of cumulative home price increases plus higher mortgage interest rates. The National Assn. of Home Builders’ housing opportunity index covering 225 metropolitan areas, released in mid-August, found affordability down 4.4% from the previous quarter. The index measures the percentage of households that can afford to buy the median-priced home with a 10% 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 that the recovery is simply moving into a “second, more sustainable” phase. During the last 18 months, he said, “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 two years 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, Nothaft said. Sales should continue to see “healthy” growth and prices should continue to rise, he said, “but the percentages will be less.”
The second phase of the recovery actually started earlier this year, said Jed Kolko, chief economist for Trulia, “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 said, 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.