Housing Prices Hitting Price Ceilings

By Harry J. Lew

A CNBC report suggests that there may be a limit to what consumers are able to pay for housing, suggesting the days of aggressively setting list prices may be over.

According to CNBC, a number of warning signs suggest that prices may have hit the affordability ceiling for many Americans:

• Existing and newly built home sales fell in June, with the latter sinking to the lowest level since last year.
• Home prices continue to gain, but at a slowing pace.
• Mortgage applications are falling steadily, and mortgage rates are rising steadily.
• Single-family home construction is falling.

CNBC cited a number of local data points to buttress their conclusion. For example, it said that June 2018 home sales fell 5.5 percent in Denver, Colorado, which is one of the country’s strongest metropolitan housing markets. Part of the problem there is that housing inventory is tight.

Meanwhile, sales of both new and existing homes in Southern California fell sharply in June compared to sales in 2017. Experts report that demand is still strong there and prices are continuing to inflate, but more listings are experiencing price reductions.

CNBC quoted David Fogg, real estate agent in Burbank, California who reports his local market is still strong, but that fewer prospects are viewing his listings. “We’re still selling most every home, but now it is usually with just one or two offers over the 10 to 15 offers we were seeing earlier in the year,” Fogg said.

Fogg added that for him, the “anything-goes list-price strategy” is no longer working. “Buyers want to buy, but we’re seeing fewer of them, and they are much more careful. Many properties are now not selling and/or coming down in price.”

Despite these warning signs, some experts believe that the return of buyer sanity might actually help the country’s home-ownership rates. “The rise in home ownership in the spring was consistent with the last few quarters, so while there appears to be a slowdown in the growth rate of home sales and prices, it has not slowed rising homeownership, said Sam Khater, chief economist at Freddie Mac.

Khater pointed to a lag in home ownership after the housing boom in the mid-Oughts, which remains a percentage point below its 50-year average. Khater attributes this to the continuing after-effects of the Great Recession and the lopsided recovery, which delayed financial progress among the Millennial generation. And when they returned to the housing market in big numbers last year, they got hit with a double whammy: lack of inventory and rising prices.