Market Update: Shortages Continue and Prices Keep Rising
If you liked 2017 real estate markets, you will love 2018. Buyers will need time, patience and persistence to find the right home this year. Owners who have been waiting for the right moment to sell might make their move now. Prices are leveling off in markets where home prices have outdistanced.
The three-year shortage of homes for sale is continuing this year, driving prices even higher. In many markets, they have reached a tipping point where hard-working, dual-income families cannot afford to become homeowners. Steadily rising mortgage rates coupled with prices driven by shortages are making conditions more difficult for buyers.
2018 Opened With a Whimper
Through February, a time when multiple listing services are restocking supplies in advance for the spring sales season, inventories were 8.1 percent lower than they were a year ago. Supplies nationwide have fallen year-over-year for 33 consecutive months. Rising prices have caught some housing economists by surprise. Within the first three months, forecasters at both Fannie Mae and Freddie Mac revised their price projections for the year.
Not all markets and not all price tiers are seeing their home values appreciate at the same rate. For example, since 2009, homeowners in California and Colorado saw more than a 60 percent increase in their home prices while homeowners in Delaware saw only a three percent increase. Luxury-priced homes are plentiful and prices are soft but affordable starter homes are scarce and are appreciating much faster than premium-priced homes.
“Homes with a purchase price less than 75 percent of the local area median had price growth of 9.0 percent during the year ending January 2018. Homes that sold for more than 125 percent of median appreciated 5.3 percent over the same 12-month period. Thus, first-time buyers are facing acute affordability challenges in some high-cost areas,” said Frank Nothaft, chief economist at CoreLogic.
This is a year for buyers−especially first-time buyers−to be patient and prepared to move quickly when attractive properties hit the market. Buyers should sign up for email alerts from Homes.com and monitor new listings promptly. In late summer and fall, buyers have more leverage because many sellers who hope to close before the year ends will sweeten incentives and even cut prices. First-time buyers should be careful to budget conservatively and resist the temptation to make an offer that they can’t afford.
Sellers looking for the best time to sell should be getting their homes ready weeks in advance for the spring sales season – the time when more buyers are in the market than any other. Homes are selling in 37 days, eight days faster than a year ago. Even though inventories are tight, sellers who spend the money to get their homes in shape to sell will recoup their investments and sell their homes faster than those who list their homes “as is.”
Market conditions around the nation
Compared to a year ago, Sacramento’s January inventory was down 16.3 percent. Months of supply increased slightly, rising from 1.3 months to 1.4 months. Prices in Sacramento are rising about as quickly as the national median and sales are very strong. In Sacramento County, where the majority of homes in the region are sold, the median sales price was up more than six percent in February over a year ago. The median price rose from $310,500 to $330,000, according to CoreLogic. The median sales price of resale homes in Sacramento County homes has more than doubled since the depths of the housing collapse in late 2011 and early 2012, when it bottomed out at $155,000, according to CoreLogic. It’s still short of the peak of the housing bubble in 2005 when the median reached $374,000. New home construction in Sacramento is up 50 percent, providing buyers more options.
Even as sales slow, double-digit home price increases are outpacing the national rate. In February, the metro area saw the median price top $500,000, rising 11.8 percent over February 2017, according to the S&P Case Shiller Home Price Index. The culprit is a serious shortage of homes for sale. Denver closed 2017 with the lowest number of active listings of any month as far back as the statistics go. A recent survey of buyers’ agents found that prices are soaring throughout the region and “People seeking under $200,000 housing in those areas are considering trailer parks and tiny home developments since normal single-family home prices have escalated so much.”
Move-up buyers, as well as first-time buyers, are getting squeezed by the inventory shortage. This year may turn out to be the best in recent history for sellers and the worst for buyers.
Orlando’s median home price rose 10 percent in February when compared to February 2017, while sales held steady with a one percent increase. Prices rose at double-digit rates as inventory declined by nearly 9 percent compared to this time last year. Not surprisingly, affordability is down in Orlando. The Orlando housing affordability index for February is 133.18 percent, down from 140.10 last month, and the first-time homebuyers’ affordability index decreased to 94.71 percent, from 99.62 percent last month.
“As we head into peak homebuying season, those buyers who are best prepared to deal with the challenges of low inventory are in the better position to secure a home,” advises Lou Nimkoff, president of the Orlando Regional Realtors Association. “Buyers should be ready to move quickly on a home they want to buy, for example, by having a mortgage pre-approval letter in hand and having pre-determined with their Realtor which concessions and contingencies they are willing and able to eliminate from their purchase offers.”
The overall median price of Orlando homes sold in February was $228,000, which is 10.4 percent above the February 2017 median price of $206,500 and 1.3 percent above the January 2018 median price of $225,000. Flat wages, rising mortgage interest rates, a booming population and declining inventories make Orlando a tough town for buyers. Inventories are so bad they are discouraging buyers.
Seattle has all the symptoms of a hot market crippled by an extraordinary inventory shortage. King County’s median home price exceeded $750,000 last month. Home values grew 28 percent in the northern part of the county, 19 percent in Seattle, 18 percent on the Eastside, and from 11 to 17 percent across the south end of King County. The number of homes for sale across King County dropped 21 percent from a year. In January, when supplies hit a record low for the month, Seattle had the second-fewest homes for sale, relative to demand, of any market in the country, behind only San Francisco, according to RE/MAX.
Prices usually surge in the spring and summer. Sellers should time the listing to take advantage of the trend and buyers should lay low until winter arrives.
Nashville has both hot sales and soaring prices. More homes were sold in Nashville last year than in 2006, the previous record. Even with a 1.7 percent drop, February was the third-best February in history, trailing only 2006 and 2017. This year, the first quarter could surpass last year’s record-setting pace.
In the fourth quarter of 2017, at 12.5 percent, homes in Nashville had the third-highest home price appreciation among the nation’s largest markets, and sellers saw the largest profits here since at least 2000, according to a February ATTOM Data Solutions report. Nashvillians sold their homes for an average of 51 percent, or $76,600 more than what they bought them for — more than the highest profits realized during the last housing boom in the early and mid-2000s. Home prices are growing at more than 10 percent in the last year.
It’s unlikely that Nashville can maintain double-digit yearly price growth AND record sales. Look for either sales or prices to slow down this year.