Wednesday, November 28, 2018
More buyers looked favorably on the housing market in October, encouraged by a greater number of homes for sale, continued slowing in home prices, and a temporary decline in mortgage rates.
Existing home sales posted their first month-over-month positive growth in six months. New home sales, on the other hand, plummeted to their lowest point in over three-and-a-half years, even as inventories increased and prices dropped. Riding the same downward trajectory, construction of new homes also declined for the second month in a row.
Although the number of existing homes for sale decreased slightly from the end of September to the end of October, available inventory was up from the same period a year ago, according to the National Association of Realtors (NAR).
Real estate website Zillow reports that total available inventory in the metro areas it tracks rose 3 percent year-over-year in October, the first time in four years it has exceeded 1 percent growth. Availability was not widespread, however, with metro areas in California, for example, reporting big gains.
Home prices remain high, but the pace at which prices have been increasing has been slowing over the past six months due to weak sales. According to the latest S&P CoreLogic Case-Shiller home price index, prices in October were 5.1 percent higher than a year ago, down from 5.5 percent in September. The NAR stated the median price of an existing home was 3.8 percent higher than in October 2017, down from 4.2 percent year-over-year in September.
Along with increased inventory and easing prices, some buyers in late October would have been able to take advantage of a temporary dip in mortgage rates that occurred in response to turbulence in the stock and bond markets. That may have provided an added incentive to commit to a purchase while conditions were more favorable.
These trends helped push sales of existing homes up 1.4 percent for the month, compared with September’s drop of 3.4 percent, said the NAR. It was the first time since March that month-over-month sales enjoyed positive growth.
Activity was strongest in the Northeast, South and West. Most of the gains came from sales of condos and co-ops, which were up 5.3 percent over the previous month. Sales of single-family homes remained nearly flat, and are now 5.3 percent lower than the same time last year.
Higher than average prices (for existing homes) and rising interest rates are taking their toll on new home sales, which plunged 8.9 percent in October, following a 5.5 percent drop in September, to their lowest point since March 2016. The median price of a new home dipped to $309,700 (3.1 percent lower than the same time last year), but the average price was $395,000 – both far higher than the $255,400 median price (up 3.8 percent) for an existing home sold last month.
The softening market for new homes pushed inventories up to 7.4 months, the highest level of supply in seven and half years, reports MarketWatch. Not surprisingly, new single-family starts declined 1.8 percent from September, and permit requests were down 0.6 percent.
While October’s numbers were a welcome relief for real estate agents after a disappointing third quarter, market indicators suggest the growth in sales is not likely to continue for the remainder of the fourth quarter. Fannie Mae stated that its Home Purchase Sentiment Index (HPSI) fell for the second month in a row, by 2 points, in October.
Concerns about home prices, mortgage rates, and personal financial security combined to bring down the portion of participants saying “now is a good time to buy a home” by 5 points and those saying “now is a good time to sell a home” by 3 points.
Builders, too, are less optimistic about business activity in the coming months. In announcing that the Housing Market Index (HMI) for November had decreased by 8 points, to 60 (its lowest point in over three years), Randy Noe, chairman of the National Association of Home Builders, stated builders are reporting “that customers are taking a pause due to concerns over rising interest rates and home prices.” Current sales activity was down 7 points, customer traffic down 8 points, and expected future activity down 10 points.
Activity is expected to remain flat or worse going into next year. At the NAR’s annual conference earlier this month, chief economist Lawrence Yun told the audience his current forecast projects existing-home sales this year will finish at a pace of 5.345 million — a decrease from 2017 (5.51 million). In 2019, sales are forecasted to increase to 5.4 million, a 1 percent increase, provided the market begins to stabilize.