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U.S. Housing Market Hits a Rut

by Harrison Stowe on April 28, 2014 · 10 comments

  
US Real Estate Market

As I noted in a prior post, certain regional housing markets are experiencing a temporary slowdown. There were some hints that particularly high-demand regions would undergo some decline in sales – prices rose too dramatically for this to not be a consideration. However, recent analysis suggests this trend may be deeper and more widespread than previously expected. According to a new report from Forbes, the downturn in home sales last month was especially sharp. Monthly home sales dropped 14.5% in March from February, and dropped a full 13.3% year-over-year. Citing a report from the National Association of Realtors, the Forbes piece also points out that sales of new single-family homes hit the lowest point since July 2013 last month as well. New home sales might be the most disappointing aspect of the current housing market. Purchases of new construction last month severely underperformed analysis consensus according to figures compiled by Bloomberg. That being said, the general sluggishness of home sales overall was coupled with an exceptionally high price tag. According to the Forbes article, the median sales price for a purchased home last month rested at $290,000, the highest monthly tally yet recorded.

So What to Make of This?

The data suggests that the market remains most difficult for first-time buyers. This is an unfortunate development, since the overall sustainability of the housing recovery rests largely with those seeking their first home. The overall housing market risks stagnation in the case that only older or move-up buyers are drawn to the market. Generally speaking, low-priced homes seem to be moving quickest. Citing a report from Trulia, the Forbes article notes that only 49% of the homes listed at the low end of the pricing scale were one sale two months prior, compared to 53% for mid-range homes and 62% for those in the highest price tier. Additionally, data suggests that activity in the housing market remains regionally segmented. This is typical whether the market is healthy or not, but it seems especially pronounced. Sales of new single-family homes appear to be strongest in the northeast, while sales in the Midwest, west coast, and the south all appear to be lagging. Hopefully this downturn will be temporary, or at least not too detrimental to the long-term health of the housing market. Some commentators have suggested that the slowdown in the housing market might be due to the heavy and prolonged winter, which would be more comforting if the northeastern housing market hasn’t remained the healthiest. Overall, it seems we can hope that the housing market evens off and more young Americans, by whatever means, reach a place of financial security necessary to safely buy new homes.

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{ 10 comments… read them below or add one }

Jeff Collins April 28, 2014 at 6:00 am

Harrison, would you say that this is good news for those who are flipping less expensive houses as well as those who are renting SFHs to these would-be first-time buyers?

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Alison April 28, 2014 at 6:55 am

All real estate is local.

The Forbes article refers to the HUD/US Census Bureau’s Housing Starts report on *new* construction, which I think gives a false impression of market health along with implying that there is only one overall market in the US – so not true! It bothers me that these stats get trumpeted to the general public without fully explaining this, causing needless anxiety.

Here in the District of Columbia (not suburbs) closed sales were up 13.94% month over month in March. Bidding wars are standard in many neighborhoods and inventory is very low. As per our local MRIS, 571 transactions closed in DC in March. 50 were marked as new construction, representing less than 10% of the market for that month.

All real estate is local.

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Sharon Tzib April 28, 2014 at 7:44 am

I couldn’t agree with you more, Alison – all real estate is local. For instance, Houston’s SFH sales rose for the 34th straight month. Sales of homes over $250K increased, while below $150K they decreased. And the rental market soared as well, increasing 22.3% (source: http://www.har.com/mls/dispPressRelease.cfm)

I pay less attention to the sensational media articles and more attention to the data locally where I’m interested in buying.

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JaneG April 28, 2014 at 8:17 am

Same here in DFW (if not more so in Fort Worth).
Fort Worth is at the top of the boom in the U.S.
http://money.cnn.com/2014/04/02/real_estate/housing-growth-cities.moneymag/index.html?section=money_realestate

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Trace April 29, 2014 at 2:17 am

Regarding Houston.

I believe we are getting closer to a correction. Not only have the price of homes increased a lot in the last few years but property tax has followed right behind. Some people are seeing their monthly payments increase by $100 to $500+ per month on their property taxes. “worst than a ARM”

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Sharon Tzib April 29, 2014 at 8:33 am

I haven’t heard or read anything about escalating property taxes in Houston yet. Do you have a link to something, Trace? $100/year isn’t so awful, $500 could definitely impact your cash flow. I think it’s one of the drawbacks of a no income tax state – they gotta get the money from somewhere, and guess where that is? Until the supply increases, I don’t think you’ll see a correction anytime soon – there is simply too much demand right now. Having said that, you never know if you’ve reached the top until it starts falling…

I’m really enjoying all the great info that the comments section of this article is producing. Keep it coming folks with your own experiences in your area – very interesting stuff!

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Trace May 1, 2014 at 2:04 am

Property Taxes:

I keep my own number on property taxes. I use them for when looking a property for a fix & flip but more for a fix & hold. (Rental)

For a correction:

Below are a few numbers of many I look at to make my wild guesses. : )

Home Builders: Home Starts (Year 2013 — 28339 homes)
Up 20% over 2012. At this rate we will double annual home starts by 2017. Approx. 3.8 years – this would be 56678 new homes starts for 2017. I believe it will not get there.

Home Builders: —- New home sales (Year 2013 — 25627 homes) up 13% over 2012. At this rate we will double new home sales by 2019. Approx. 5.7 years – This would be 51254 new home sales for 2019.

That means they will be building new homes faster than selling them..

2013 Total single-family homes sold. This topped the previous record of 2007.
Is a bubble close ???? Well I don’t know but I might as well be careful not to get tangled into to tight.

Houston gained a record of 86000 new job growth for 2013 and 2014 projections are for 70000 or fewer.

Mortgage rates are projected to increase from the 4%+ to 5%+ for 2014

Investors are starting to step out of the buying market.

The average price for a home in Houston has been hitting records highs and is projected to increase by 8% for 2014. Increased Loan payments and higher home values which increases property taxes are not good for new home buyers or other who want to move up.

Side Note:

Multifamily projects will continue at a fast pace for 2014. When will the market being over built.???

I still think 2014 will be good but not as good as 2013.

Thats my 2 cents…..

Trace May 1, 2014 at 2:09 am

Just read through my other reply. I hope you can understand it. I see mistakes in my typing….. Its 3 am….

Sharon Tzib May 1, 2014 at 7:36 am

Hey Trace, yes, your reply made sense, but it seems you are wanting to have a discussion about future projections in Houston, which was not the intention of my original post. I was simply stating that the Houston area, today, does not correlate with the Forbes article. My crystal ball broke a long time ago, so when will all this building stop and sales slow down is anyone’s guess, but I will say that it will directly correlate to the growth that Houston is experiencing. When the businesses stop relocating there and people stop moving there for jobs and the “still” relatively low cost of living, then you will see activity taper.

In regards to escalating property taxes and mortgage interest rates (which is irrelevant for people purchasing today), those costs are almost always passed on to tenants, especially if there is high demand, which currently there is. It is a situation to watch, though, you are correct.

Marcus April 28, 2014 at 10:40 am

Phoenix market definitely shows correlation to the Forbes article. Last year we saw close to a 20% increase is homes sold, but now with the increase in prices and the increase in rates, our market is sluggish with a meagar 3% growth and that’s mostly in the luxury market.

The avg days on market for re sales are minimum 90 days and most offers are 5% below asking. The housing resurgence started in the western region Cali, PHX, Vegas these markets are all sluggish now but at one point we did experience what the eastern seaboard is now experiencing (bidding wars over asking, drastic price increases) the market will eventually stabilize but in my opinion every region will see the dip that we are in.

“Enjoying the Journey”

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