Slowing Housing Market Growth

Jul 9, 2019  15:15 ET

Scotsman Guide

Slowing supply growth could signal housing-market shift

 

U.S. housing inventory is growing — although how long that trend will continue is hazy, according to June data from Realtor.com.

Realtor.com’s latest numbers show supply growth decelerating and eventually trending toward another decline. That’s bad news for homebuyers, who are currently enjoying a market that is shifting in their favor.

A big part of that shift is due to 10 consecutive months of rising inventory, driving sellers to tweak their price expectations. Last month, for example, the number of homes with price reductions grew by 8.7% compared to the same time last year. Essentially, one in five homes on the market last month had price declines, compared to one in six during June 2018.

Additionally, the time that properties spend on the market is up to 56 days, an increase of two days from a year ago. And although the nationwide median list price is still growing, it continues to climb at a slower rate than 12 months ago. In June, that figure hit $316,000, or 5.6% higher than last year, but that rate is 3.1 percentage points slower than in June 2018. In fact, last month’s listing-price growth is the slowest it has been since April 2015, with Realtor.com calling it the “likely high point for the year.”

Inventory, however, grew by 2.8% year over year in June, down from 2.9% in May. Part of that slowing growth is due to fewer newly listed homes, with the number of these properties falling by 2.3% compared to a year ago. Without as many newly listed homes on the market, supply growth could once again turn into a decline as soon as this fall.

“If that were to happen, overall inventories would eventually approach the lows seen in January 2018, but are likely to remain slightly above that level,” said Sabrina Speianu, senior economic research analyst for Realtor.com.

That could mean a return to the raging seller’s market of the past couple of years, according to Danielle Hale, chief economist for Realtor.com.

“It was only 18 months ago that the number of homes for sale hit its lowest level in recorded history and sparked the fiercest competition among buyers we’ve ever seen,” Hale said. “If the trend we’re seeing continues, overall inventory could near record lows by early next year.

“So far, there’s been a lackluster response to low mortgage rates, but if they do spark fresh buyer interest later in the year, U.S. inventory could set new record lows.”

Why aren’t there more newly listed properties on the market? Speianu and Hale said that “rate lock” — when a homeowner has a lower interest rate on their existing mortgage that the current market rate — is a likely reason. Sellers who are looking to trade up may be balking at paying a higher rate on top of paying for additional space, while downsizers may be finding that the savings from a move to a smaller home may not match their expectations. Another explanation, they said, is “aging in place”: Older Americans are living longer, healthier lives and are choosing to stay in their current homes rather than downsizing, moving in with family or opting for senior-living facilities.

Yet another factor, per Hale, could be a recent decrease in consumer confidence due to ongoing economic uncertainty. Despite the U.S. economy growing for an unprecedented 121st straight month in June, trade tension and other economic risks have helped push consumer confidence down 4.4 points over the past year. This “could reflect consumer concerns over a potential recession or future economic growth,” she said.

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