While the popular press has not indicated downturns in the housing market; in discussions with real estate peers we have collectively witnessed a slowdown in sales, contracts signed and cancelled and an uptick in inventory.
In our local Denver market we were blaming what we perceived was a slow-down on sellers being too aggressive concerning listing price, buyers hesitant to commit while interest rates were in flux and seasonal factors i.e. schools generally being their Fall classes in August. Yet new data suggests our perceptions may be reality.
U.S. home resales fell more than expected in August, According to The National Association of Realtors existing home sales dropped 4.8 percent to an annual rate of 5.31 million units.
Economists polled by Reuters had forecast a 5.51 million-unit pace of home sales last month.
One bright spot, sales were up 6.2 percent from a year ago most likely due to the continuing strengthening of our national economy and continued historically low interest rates.
According to Lawrence Yun, the NAR’s chief economist “The decline in August might be due to rising prices shutting out potential buyers”. Home sales fell most in America’s South and West, areas which had recently seen the fastest price gains, he said.
Nationwide, the median home price fell slightly in August to $228,700. That was still up 4.7 percent from a year earlier, but left the year-over-year rate at its lowest since August 2014. Prices in the West were up 7.1 percent from a year earlier.
I concentrate on the inner-city neighborhoods south and east of downtown Denver. I have witnessed an uptick in listings and residences staying on the market for longer periods of time HOWEVER I have also noticed once the asking prices are adjusted to reflect overall market conditions versus the hysteria of Spring 2015, units are going under contract and closing.
An example are two listings one block north of my personal residence:
One listing was purchased one year ago for approx $415K. While the new owners embarked and completed minor capital improvements, nothing extravagant to the level of a total fix and flip or similar. The home re-entered the market at $595K. While showings were above average (I consider healthy and average, 3-4 showing/week), no offers. Once the price was adjusted downward to approx $575K, the home went under contract including an inspection resolution requesting a new roof.
Across the block, two row houses sold within the past year for between $525K and 550K. Suddenly one comes on the market at $600K+ with less square footage than its peers. After being on the market for a few weeks the asking has been reduced yet still above the comps from the past 6 months.
I always advise both buyers and sellers to look at both comps in the neighborhood and the individual property’s history. While I believe in obtaining a profit, 30%+ gains in 1-2 years sans major capital improvements is questionable even in a hot market. In addition if financing is being considered, one must consider the appraisal which looks back not forward.
While I am not concerned about a potential bubble or impending downturn, I do believe we will witness an overall seasonal slowdown concerning inventory over the next quarter. Coupled with the potential fr a rise in the Fed Funds rate which will impact mortgage rates, I am assuming prices will stabilize and may even adjust downward from this past summer.
We must remember, in Metro Denver we have had a significant run up in prices over the last few years partially based on coming off a bottom coupled with purchases based on a monthly payment and not overall valuations. I for one welcome the opportunity to return to a more balanced marketplace where housing prices match or exceed inflation by small margins, that to me is a rational housing market.