Fall Housing Market Outlook: Change Is Underway

by Steve CookOctober 10, 2018

As we enter the fall sales season, fundamental changes are underway in many housing markets. According to the most recent existing home sales reports from the National Association of Realtors, after three years of shrinking supplies of homes for sale and rapidly rising home prices, the inventory crisis is waning and prices are leveling off.

One reason for the change in direction is lagging demand. Existing home sales fell below last year’s levels in April, May, June, and July―the heart of the home-buying season. Price hikes generated by shortages of inventory have outpaced incomes and put buying a home beyond the reach of hundreds of thousands of potential first-time buyers and move-up buyers.

Lower Sales, Moderating Prices and Improving Inventories

Higher prices have had at least one good outcome. They are encouraging more buyers to list their homes. For the first time in three years, inventories of existing homes did not decline over the summer months. NAR Chief Economist Lawrence Yun says several consecutive years of strong home price growth are enticing homeowners to consider selling. “Though the vast majority of consumers believe home prices will continue to increase or hold steady, they understand the days of easy, fast gains could be coming to an end. Therefore, more are indicating that it is a good time to sell, which is a healthy shift in the market.”

Unaffordability varies greatly by locale. The national statistics mask substantial variation across different parts of the U.S. Almost all Southern and Midwestern households live in affordable neighborhoods, while large shares of Northeastern and western neighborhoods have price-income ratios that would stretch middle-income family budgets. Though prices are moderating in some regions, mortgage rates affect buyers nationwide. With rates now approaching 5 percent on a thirty-year fixed rate mortgage, the highest level since 2001, the Federal Reserve is expected to raise rates one more time before the year ends.

Traditionally both demand and supply decline this time of year. With fewer buyers in the market, many sellers may pull their listings and wait until next spring. Many of those who keep their homes on the market through the fall reached or exceeded the 90-day listing period. Aging listings can scare away buyers who wonder what’s wrong with houses that haven’t sold in today’s active marketplaces and owners with stale listings.

Buyers Are Not yet Reacting to Changing Market Conditions

Fannie Mae’s authoritative Home Purchase Sentiment Index (HPSI) a monthly consumer survey (August results) and NAR’s quarterly HOME Survey (third quarter 2018) report that consumers have not yet picked up on the slowdown of price increases and improvement of inventories over the summer has improved. In the NAR survey, a record high 77 percent of Americans believe that now is a good time to sell a house, while those that think now is a good time to buy continues to decline.

Fannie Mae’s Index improved slightly due to improving consumer income rather than better market conditions for buyers. In the third quarter of 2018, the HOME survey found that the percentage of people who believe that now is a good time to buy a home (is the lowest recorded since the survey started in 2015. (You might click on the link above for Fannie Mae’s current monthly survey results.)

Source: Fannie Mae

The jury is out on whether the current lull in sales, the stabilizing of inventories and a slight decline in the rate that prices are rising will continue through the balance of the year. Economists at Fannie Mae and Freddie Mac expect year-over-year sales to stabilize over the balance of the year and prices to continue to soften. Sellers who stick it out through the fall will be stuck with 90-day plus listings have their eyes on the calendar and are super-motivated to make a deal as the holidays approach. Conditions probably won’t improve enough to encourage many first-time buyers to return to the marketplace, but it could be a good time for bargain-hunting buyers who really do their homework on local market trends and have their financing in order.

Fall Season Tips for Buyers

  • Prices will either moderate or decline slightly in most markets. Sales may drop from last season’s levels.
  • Meet with your agent to review recent local and hyper-local market trends.
  • The competition will improve due to the seasonal decline of buyers in the fall and perceptions that conditions for buyers are not improving.
  • Shop carefully and pay attention to how long properties have been listed. Research aged listings to look for suitable properties that sellers might be motivated to sell.
  • Look for price reductions.
  • Have your financing in order so that you can move quickly before the holidays arrive, which is not a good time to find a settlement agent, appraiser or home inspector.
  • If you plan to deduct the mortgage interest on your 2018 taxes, you must close on a new home before the new year, Remember, the new tax law will be in effect, and you will need more than $24,000 in deductions on a joint return to make it worth your while to itemize.
  • Move-up buyers will have to plan carefully. While this fall may be a better time to get a good deal on a larger home. Be sure you can sell your existing one this year or be prepared to wait for the spring sales season. Smaller, starter homes will still be in demand.

Fall Season Tips for Sellers

  • Review conditions in your local market conditions for buyers. If prices are still rising and inventories still near record lows, buyers may not be motivated.
  • If your home has been listed for two months or more, review your sales strategy with your agent. Review the latest comps in your neighborhood. If you need to sell this year, consider a price reduction to attract buyers.
  • Refresh your listing with new photos or video. Show off your curb appeal after the leaves have fallen and show off your fireplace with a cozy fire.
  • Should prospects for sale be dim by December, consider de-listing your home and focusing on the spring sales season. You will need to take it off your MLS for at least one month before the “clock” that tracks your home’s time on the MLS resets to zero. Take advantage of the time to review what you have learned and work with your agent to address issues that made it hard to sell your home in 2018.
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About The Author
Steve Cook
Steve Cook is editor and co-publisher of Real Estate Economy Watch. He is a member of the board of the National Association of Real Estate Editors and writes for several leading Web sites, including Inman News. From 1999 to 2007 he was vice president for public affairs at the National Association of Realtors.