By Dr Denver H. Bubble
The Wall Street Journal in an article titled Spring Home Sales Could Be the Weakest in Years (behind a paywall) argues that there are powerful headwinds facing the housing market. The author identifies the main factors that could dampen growth in home prices. They are rising mortgage rates, the new Trump Tax bill that reduced the mortgage interest deduction benefits and "a growing weariness among first-time buyers being priced out." According to a related article by the author "roughly 76% of renters in August said they believe renting is more affordable than owning, up from 65% in September 2016, according to survey results from Freddie Mac." This is a popular topic here at Dr. Denver, where we have been beating the drum that the rapid rise in home prices have been pushing out first-time buyers and will eventually lead to lower sales. According to the National Association of Realtors, 40% of the year's sales occur between March and June with buyers looking to get into new homes before the new school year. So we will get a good insight into 2018 sales volume by mid-year.
Our ever bullish friend, Lawrence Yun, chief economist at the National Association of Realtors, is forecasting sales to be flat between March and June as well as year over year. For comparison, there were 2 million homes sold between March and June 2017 and 2.06 home sold from March and June 2016. Looking at some of the hard data this year, it looks likes just being flat will be a hard target to hit.
Some fast fired facts from the article that paints a bearish case for the housing market, Fannie Mae released data indicating consumer confined in the housing market fell by 5% from January to February. Consumers cited the stock market volatility and rising mortgage rates. Our new man at the Federal Reserve, Jerome Powell, won't be one to help alleviate rising interest rates, as he has hinted at up to 4 rates increases this year. Also existing home sales and pending home sales fell 4.8% and 4.7% respectively. In addition to the drop in sales, the sucker punch of rising median home prices occurred again. Prices rose 5.8%, the 71st straight month of increases. The forecasted slow down is being felt at both the high end and low end of the housing market.
According to the article, "Weakness at the high end is being driven by stock market volatility and the $10,000 cap the tax bill placed on deducting state and local property taxes. On the low end, buyers are being priced out of the market by rising interest rates. The rate for a 30-year mortgage has risen about half a percentage point this year to 4.43% from 3.95% in early January. For the median-priced U.S. home that translates to about $55 more a month, but in higher-cost markets, the difference can be steeper." As we turn to March, we will begin to closely follow these trends here at this blog to see if the bubble is finally bursting and bring some much need affordability in the form of lower prices to buyers to have a healthy housing market in the Denver metro region.