NEW YORK – Oct. 23, 2018 – Keith and Kylie Beukema were bracing for a yearlong slog as they started hunting for a larger home in the Denver area, one of the hottest housing markets in the country the past few years.
Instead, it recently took them just two weeks to snag their four-bedroom dream house with mountain views in Thornton, paying $490,000 – $10,000 below asking price – after visiting just three other homes.
"I was nervous (the seller) would laugh us off," said Kylie, a 29-year-old physician. "We figured we'd get into bidding wars" and almost certainly have to pay above list price.
Denver epitomizes the slowdown taking hold this year in the nation's housing market as mortgage rates climb, home prices rise and the new tax law limits the benefits of ownership. Those hindrances are adding to a longer-standing obstacle to sales – low home supplies – and making the housing market across most of the country more favorable for buyers – if they can afford the added costs.
"Definitely, there is a shift in the market," said Lawrence Yun, chief economist of the National Association of Realtors® (NAR). "Buyer activity appears to be softening … Buyers have more chances."
While housing is still largely a seller's market, it's becoming less so, and the playing field should be roughly balanced between buyers and sellers by the middle of next year, said Ralph McLaughlin, chief economist of research firm Veritas Urbis Economics.
"I think we are entering a (return) to normalcy," McLaughlin said.
Home sales slip
Nationally, existing home sales were down 2.1 percent through the first nine months of the year compared with the same period in 2017. The prior three years, annual gains for home sales totaled 6.3 percent, 3.8 percent and 2.7 percent, according to NAR. The Realtors group on Friday reported a 3.4percent sales drop in September from the previous month to the lowest level since November 2015, though Hurricane Florence in the Carolinas contributed to the weak showing.
Prices for homes are still rising in general, although more slowly. In September the median price was up 4.2 percent from a year earlier to $258,100, but that marked a pullback from gains of 5.1 percent and 5.7 percent in 2016 and 2017, respectively.
Next year, NAR's Yun expects flat sales and price increases of just 2 to 3 percent.
Of course, housing's health varies by location. Generally, expensive Western markets such as Denver, San Francisco and Seattle had been posting double-digit yearly price gains that have slowed. More affordable areas such as Indianapolis and Grand Rapids, Michigan, are still seeing price increases accelerate. And reasonably priced Southern markets such as Atlanta remain hot, said Daryl Fairweather, chief economist of real estate brokerage Redfin.
But even the still-vibrant markets could cool by late next year as housing costs continue to mount, said McLaughlin of Veritas Urbis Economics.
Last year, economists blamed softer sales gains on skimpy inventories that limited the pickings and drove up prices, discouraging some buyers. And the nation's 4.4-month supply of homes in September – the time it would take to exhaust the stockpile assuming no units were added – was still below a normal six months or so. While low, that was up from 4.2 months a year ago, marking just the second annual increase since 2015, according to NAR.
That's largely because builders have responded to the shortages and put up more houses, mostly higher-priced units that can offset sharply rising labor and material costs.
Homes linger longer on market
In Denver, housing inventory is up 16.1 percent from a year ago, according to the Denver Metro Association of Realtors. Yet just 3,983 homes were sold last month, down from 4,994 a year earlier. The median sale price is off 5.9 percent from its April peak of $455,000. And single-family homes were on the market an average 27 days, up from 19 days in June.
Lisa Huntington-Kinn, a broker with Your Castle Real Estate in Denver, said the market started to sputter in July. Before, houses often drew dozens of bids and routinely sold for above asking price. Now, she said about 30 percent of sellers have had to reduce their list price.
As costs ratcheted higher, "a lot of buyers dropped out," she said.
Until summer, broker Van Lewis of RE/MAX Alliance in Aurora, Colorado, was having his best year ever. Since then, he said, monthly sales have fallen 50 percent. He partly blames an influx of apartment buildings that are offering significant concessions, making renting more attractive than buying for many millennials.
Although the tech-driven Denver economy is still robust, and wages are rising, "the spread between income and (purchase) costs became too much," he said.
The thinning pool of buyers gave more leverage to the Beukemas, who wanted to move up from their smaller townhouse because they plan to start a family soon. Besides dropping the asking price, the seller also agreed to make the deal contingent on the Beukemas selling their townhouse by December – an allowance almost never granted during the go-go days.
On the other side of the ledger is Holly Steele, 65. She eventually sold her Aurora townhouse in late September, but it took nearly three months instead of the two weeks she expected. And she had to drop the price three times, from $295,000 to $276,500.
"It was getting a little stressful because I wanted to make my move" to Rapid City, South Dakota, before snow season, she said.
Rates rise, first-time buyers dip
Nationally, rising mortgage rates are playing a bigger role and compounding the effect of U.S. home prices that are up more than 50 percent since their 2012 bottom.
Fixed 30-year mortgage rates averaged 4.85 percent for the week ending Oct.18, according to Freddie Mac, up from 3.88 percent a year ago. That bumps up the monthly payment on a typical $210,000 mortgage by about $125.
The higher rates are "making many people scared," from first-time homebuyers to trade-up buyers seeking more expensive homes, Yun said.
The new tax law is also chilling some sales. It caps the deduction for property and state and local income taxes at $10,000. And it limits the mortgage interest deduction at home values up to $750,000, down from $1 million. The changes are tempering sales in states with more high-end houses, such as California, Connecticut, Illinois and New York, Yun said.
Meanwhile, pent-up demand from first-time homebuyers – who have driven the market the past couple of years – may be starting to peter out, said Aaron Terrazas, chief economist of Zillow, a real estate research firm.
The slowdown could mean housing will provide less support for the economy. Builders might put up fewer homes, fearing weaker economic growth and reduced home sales in coming years, Terrazas said. Single-family housing starts are down 1.7 percent so far this year. But he said the downshift will be nothing like the housing crash of the late 2000s, which toppled the economy into recession.
"This is not 2008," he said.
Copyright 2018, USATODAY.com, USA TODAY, Paul Davidson
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