Are home buyers hitting “pause”?
I’ve been hearing from colleagues and sources in the industry of a slow-down in real estate.
The comments run the spectrum from a hint of panic to curiosity about how all the different pieces of the economy might affect home buyers’ ability to purchase a home and sellers’ to sell their home both nationally and here in Ann Arbor.
Sellers have been in the driver’s seat locally for years, commanding over-asking price offers as well as escalation clauses or appraisal gap coverage. Those aren’t necessarily going away right this minute. But it does feel like a shift is coming.
Dr. Lawrence Yun, Chief Economist at the National Association of Realtors, addressed the Ann Arbor Board of Realtors’ General Membership this morning with some interesting insights from 10,000 feet — meaning, a national perspective — and from ground level, here in Ann Arbor.
The challenge locally, and, as it turns out, throughout the country, is that homebuyers have outnumbered sellers by huge margins for several years. To boot, local home construction has lagged demand for new homes by similarly huge margins. During his presentation Yun showed a slide indicating a consistent year-on-year downward trend in new home construction.
Here are some other things Dr. Yun mentioned today:
-Nationwide there is “diminished optimism” about buying a home due to both availability and increasing costs.
The latest figures from the Ann Arbor Board of Realtors show that single family homes list prices went up nearly 15 percent in July, the latest month for which there are figures, and sales prices rose 14.5 percent. Condo list prices jumped 21 percent in July over July 2017 and sales prices rose just under 10 percent.
-Lowest inventory of homes nationwide in a generation
-Possibly two rounds of interest rate increases this year
-Homeowners’ net worth (Ann Arbor) compared to Renters: $230,000 vs. $5,000 or less. This is huge: homeowners’ net worth on average is 46 times that of renters. (this figure might be affected by the high number of college students who rent here)
-Potential homebuyers negativism is reflected in low inventory as homebuyer want more choices: in the past prospective buyers would look at 10 -12 properties on average; today, because of lower inventory, it’s five or fewer. Along with paying premiums to beat out competition, buyers appear more frequently to be hitting “pause” rather than jumping into the fray
-The two most reliable and best ways to build net worth: homeownership and stock market portfolio
On the heels of Dr. Yun’s talk I came across this article in Keeping Current Matters , an online industry trade publication:
“For the last several years, buyer demand has far exceeded the housing supply available for sale. This low supply and high demand have led to home prices appreciating by an average of 6.2% annually since 2012.
These industry surveys indicate a softening of demand:
- The ShowingTime Showing Index® tracks the average number of buyer showings on active residential properties on a monthly basis, a highly reliable leading indicator of current and future demand trends. Latest Report: “Showing activity throughout the country increased by 0.3 percent year over year in July, the third consecutive month that the U.S. ShowingTime Showing Index recorded buyer interest deceleration compared to the previous year. The June 2018 figures revealed a 0.0 percent change in showing traffic from 2017, while May showed a 1.2 percent year-over-year increase. The 12-month average year-over-year increase was 4.6 percent.”
- The REALTORS Confidence Index is a key indicator of housing market strength based on a monthly survey sent to over 50,000 real estate practitioners. Practitioners are asked about their expectations for home sales, prices and market conditions. Latest Report: “REALTORS reported slower homebuying activity in July 2018…The REALTORS® Buyer Traffic Index registered at 62, down from the same month one year ago (69). This is the fifth straight month (since March 2018) that Realtors reported a decline in buyer activity compared to conditions one year ago.”
- In the latest ‘Z’ Report by Zelman and Associates (A Real Estate Broker survey): “While we continue to expect a resumption of growth in resale transactions on the back of easing inventory in 2019 and 2020, our real-time view into the market through our Real Estate Broker Survey does suggest that buyers have grown more discerning of late and a level of “pause” has taken hold in many large housing markets. Indicative of this, our broker contacts rated buyer demand at 69 on a 0-100 scale, still above average but down from 74 last year and representing the largest year-over-year decline in the two-year history of our survey.”
We had a strong buyers’ market directly after the housing crash which was immediately followed by a strong sellers’ market over the last six years.
If demand continues to soften and supply begins to grow (as is projected), we will return to a more neutral market which will favor neither buyers nor sellers. This “more normal” market will be better for real estate in the long term.”
The bottom line, whether you are considering selling your home or buying a home locally: it might sound self-serving, but talk to a Realtor® to get insights into the market. Talk to friends and relatives to get recommendations on someone you can trust to give you the best information so you can make educated decisions about your best moves now or in the future. There is no cost but your time — and I always throw in a cup of coffee as a treat.