Home prices: Preparing for descent
The housing market is losing momentum, said Laura Kusisto in The Wall Street Journal. Home prices rose at a frantic pace for most of the past two years, “growing significantly faster than both incomes and inflation.” New data released last week show that homes are still 5.8 percent pricier than they were last year—but that’s the lowest rate of increase since last August. Many buyers have been priced out of the market, and an almost 1 point increase in mortgage rates in a year, to an average of 4.83 percent, has not helped. “More than five years of rapidly rising prices, combined with higher mortgage rates, have made homes increasingly unaffordable.” Now buyers are no longer showing up and open houses look increasingly empty.
“Homebuyers are reaching a breaking point after years of breakneck price increases that far exceeded income gains,” said Ben Casselman in The New York Times. Asking prices are being cut in hot housing markets, such as New York, Seattle, and San Francisco. The slowdown has hit even places where the economy is soaring. Take Denver. The local economy is fantastic; “every week brings headlines about companies bringing high-paying jobs to the area.” But hardly any new properties sell for under $300,000. Years of price increases have “gummed up the market, making homeowners reluctant to sell for fear of being unable to find a new home.” Housing affordability, said Lakshman Achuthan in Bloomberg.com, “just fell to its lowest level in 10 years.” The median cost of purchasing a home recently reached six years of the typical worker’s earnings. After the long price run-up, the market appears to have “already entered a cyclical downturn that is likely to intensify.”
“Economists have already called a peak” in many housing-market indicators, said Amanda Fung in Yahoo.com. Home sales have dropped 3 percent since last year, and when the number of houses sold drops, it usually means that prices will soon fall, too. The consolation is that any coming downturn probably won’t be nearly as bad as the last. “The drop in home prices during the financial crisis was the most severe drop in the U.S. market since my data began in 1890,” said Nobel Prize–winning Yale economist Robert Shiller, who anticipated the mid-2000 crash. The housing market is far healthier now than it was before the last downturn, said James Briggs in The Indianapolis Star. “You might have a harder time buying or selling a home in the coming months, but you’re probably not going to find yourself hopelessly underwater on a mortgage.”