Home Price Gains Slow Down
Buyers take note. The days of soaring home prices may now be over, indicating yet another shift in the market.
“It’s a market in flux,” Sherry Chris, CEO of Better Homes and Gardens Real Estate, told USA Today. “We are in year two of a long-term recovery, and there will be bumps.”
Price gains slowed down in a few hot markets last month as new homes entered the market, reducing competition among potential buyers, according to Zillow. Compared to August, seasonally adjusted prices dropped in half of 30 major metropolitan areas.
U.S. home prices were up 1.2 percent in the third quarter when compared to the previous one, reported USA Today. In the second quarter, prices had seen a 2.5 percent jump.
In markets such as Los Angeles and San Diego, prices dipped 1 percent when compared to August. For those markets, that was the first noticeable month-to-month dip since the recovery began.
Zillow’s Chief Economist Svenja Gudell said the trend is bound to continue with more markets on the path of decline this month, too.
What’s arresting the sharp rise in prices is a drop in investor buyers and an uptick in inventory. Higher prices have cooled off investor interest, opening up inventory for other buyers.
Seasonally adjusted, the number of existing single-family homes for sale in August was up 5 percent from January, according to USA Today.
The good news is a slowdown in rising prices will ensure that there’s not another bubble, especially in hot markets such as California.
“The market is still strong,” but hitting more of an equilibrium between buyers and sellers, Errol Samuelson, Realtor.com president told USA Today.
Fewer Homes for Middle-Class Buyers
Despite the drop in prices, there are fewer affordable homes in the market for middle-class buyers. According to Trulia, more than half of the homes on sale in 14 of the top 100 metropolitan regions were out of bounds for middle-class buyers. They may have wanted them, but they just couldn’t afford the prices.
According to Trulia, a year ago, only eight of the top metro areas were beyond reach for middle-class buyers.
What’s driving unaffordability for the middle class is climbing prices, rising interest rates, fewer foreclosed homes for sale and flat incomes, said Jed Kolko, Trulia chief economist.
Nationally, prices were up 12. 4 percent in August compared to a year-ago period. Trulia said 30-year mortgage rates are at 4.5 percent compared to 3.5 percent last year. To top that, foreclosure sales are on the wane, making it harder for buyers to find those awesome deals. According to the National Association of Realtors®, 12 percent of existing homes sales in August were distressed homes. That’s down from 23 percent in 2012.
Trulia has a formula to calculate home affordability for middle-class buyers. Homes are considered affordable for middle income families if their total monthly payment is less than 31 percent of the metro area’s median household income. That’s after the owners had made a 20 percent down payment and paid for all taxes and insurance on the property.
Another Housing Bubble?
Despite a drop in affordability and slowdown in price hike, a top Federal Reserve official said this week that he notices signs of a U.S. “housing bubble.”
“I’m beginning to see signs not just in my district but across the country that we are entering, once again, a housing bubble,” Dallas Fed President Richard Fisher said. “So that leads me … to be very cautious about our mortgage-backed securities purchase program.”
Many believe what caused the 2007-2009 financial meltdown was a mortgage-market bubble. The Fed, to remedy the situation, held down interest rates and bought $85 billion in assets every month. That figure included $40 billion in mortgage-backed securities.
Fisher warned that the central bank’s easing policies could be triggering asset price bubbles.
“We have to be watchful and realize there has historically been an era of the Fed over-stimulating” since the Great Depression, Fisher said.
“I worry we are following that tradition now,” he said. “No one knows when the bubble pops. But I would argue that … with each dollar we buy in Treasuries and mortgage-backed securities, we’re getting closer to the tipping point.”
Source: http://www.realestate.com/advice/home-prices-ease-but-many-markets-too-costly-for-middle-class-buyers-27559/
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