Home prices have
finally hit a wall on the West Coast
Home sellers have
had it easy over the last few years. Housing demand has risen along
with the improving economy, and home builders have struggled to
build at a pace that keeps up with that demand. The result was a
shortage of housing inventory that allowed sellers to sit back and
let buyers bid up the price of their home.
But data from the last two months suggests
that the housing market is entering a new stage, especially on the
West Coast, where home prices have risen beyond most peoples
capacity to pay. Instead of bidding wars, houses are sitting on
the market longer, and price cuts are becoming more common. Buyers
are starting to regain the upper hand.
Housing supply constraints have been a
primary factor in driving prices up, but there are signs this is
changing. Data from the National Association of Realtors shows that
months of supplya leading indicator of housing
supply that divides the number of active listings by the pace of
saleshas ticked up year-over-year in the last few months after
years of declines.
But real estate experts often say theres
no such thing as a national housing marketnew homes for sale
in New York, for example, dont mean anything for people who
live in San Franciscoand the spikes in supply are most pronounced
on the West Coast.
Some of the biggest jumps are in markets
that have been red hot over the last 5 years, namely the San Francisco
Bay Area, Seattle, and Denver. Active real estate listings in September
were up by a whopping 113 percent year-over-year in San Jose, 81
percent in Denver, 47 percent in Seattle, 33 percent in San Francisco,
34 percent in San Diego, and 12 percent in Los Angeles.
But the trend isnt limited to the
largest markets, as smaller cities across California, Colorado,
Washington, and Oregon have seen jumps as well. Of the 30 markets
that showed the highest spikes in active listings in September,
19 are in those four states.
While the number of active listings has
risen, home sales have fallen dramatically across the U.S., as inventory
woes and affordability constraints continue to drag down the market
as a whole. But as with supply spikes, home sales are falling by
double digits in some markets on the West Coast. In September, home
sales were down 24 percent year-over-year in Seattle, 16 percent
in San Jose, 16 percent in Los Angeles, and 13 percent in San Diego.
The combination of more homes on the market
but fewer sales means that despite surging demand for housing, homes
are sitting on the market. And given the affordability crisis sweeping
across America, especially on the West Coast, this points to only
one thing: Home prices have outpaced wages in these markets and
people simply cant afford to buy.
In Southern California, the year-over-year
rate of home price appreciationmeaning the rate at which home
prices are going upbegan to decline in the spring and has
continued to do so into the fall. Northern California was a little
later to respond, but San Jose and San Francisco registered their
first year-over-year declines in September.
Another wild card in this dynamic is rising
interest rates, which are once again approaching 5 percent. Rising
rates were cited as a possible cause of last weeks stock market
selloff, and the housing market is particularly sensitive it. When
interest rates rise, monthly mortgage payments go up.
For markets where home prices have already
hit their ceiling, rising rates will likely cause home prices to
drop just because something will have to give for people to be able
to buy a home. Unfortunately for home buyers, the price drop wont
result in lower payments, just that they will pay less on the principal
of their mortgage and more on interest.
Regardless of where rates go, though, home
prices on the West Coast markets where supply is up and sales are
lagging appear to have nowhere to go but down.
From Curbed, Jeff Andrews, Oct 16, 2018