Housing Supplies Rise as Bidding Decreases

With the close of Q4 approaching, it seems housing market activity has been cooling. As I noted in a prior post, there have been hints the momentum that sparked the housing recovery in late 2012 might be slowing. With certain markets demonstrating a potentially volatile acceleration in property values, this development wouldn’t be entirely healthy. That being said, there seems to be a roster of newly emerging housing trends.

As a new report from Bloomberg notes, the so-called “bidding wars” that caused metro housing markets to heat up show signs of decelerating. Much of this is a natural outgrowth of the post-recession jump in home prices. Certain areas are sustaining median home prices that are too elevated for aggressive purchase, leading a leveling off or potential decrease in property values. In terms of hard specifics, the Bloomberg story outlines that asking prices were lowered on about 25 percent of all listings in September. Citing figures provided by Seattle-based brokerage firm Redfin, the story points out that prices were cut on 23.8 percent of all listings in October as well.

Taking this into account, it appears that we’re seeing a slight reversal in the revving up of prices that defined the housing market up through Q3 2013. It’s also a clear indicator that market trends have begun to shift away from the rapid-purchase paradigm that emerged this year. The Bloomberg report further outlines this, noting that contracts to buy previously owned residences plunged for the first time in three years this September.

Some of this seems precipitated by a rise in borrowing costs. Mortgage rates have risen, which has motivated financially cautious young buyers to further reconsider (or stave off) settling on homes. According to figures provided by Freddie Mac, the average rate for a 30-year fixed loan jumped to 4.35 percent the week ending November 17, which is a pronounced rise from the 3.35 percent recorded in May of this year. Taking a broad view of the housing market, various factors seem to be falling into place that are encouraging a nationwide move toward conservative buying patterns.

So What’s the Takeaway?

As an addendum to the rise in mortgage rates, mortgage prices have dipped a full 17 percent since May. Many analytics firms have begun lowering their home-sales forecasts, with Capital Economic Ltd. Diminishing their 2014 projection to 5.2 million units from 5.4. Overall, the slowdown in sales could have a more positive than negative impact on the nationwide housing market. The frenetic sales activity throughout the West Coast that portended the chance of a second bubble has slowed down considerably, and the area’s potentially toxic impact on the nationwide market seems dulled.

This ultimately leaves the housing market more room to even off after the sharp climb in home values since the close of 2012. As I’d noted in a prior post, had these trends persisted we’d have been facing the possibility of a second bubble. Granted, there are some potential downsides as well, with the demand for new construction likely to slow as well. Taking all this into account, the decrease in bidding and the overall slowdown in sales could lead to a market that is, in the long term, friendlier to first-time homebuyers.

Photo: patwalsh_2000

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.