The US housing market – particularly in cut-throat areas like Seattle, Silicon Valley and Austin, Texas – appears to be headed for the broadest slowdown in years.
Buyers are getting squeezed by rising mortgage rates and by prices climbing about twice as fast as incomes, and there’s only so far they can stretch.
“This could be the very beginning of a turning point,” said Robert Shiller, a Nobel Prize-winning economist who is famed for warning of the dot-com and housing bubbles. He stressed he isn’t ready to make that call yet.
A slew of figures released last week gives ample evidence of at least a cooling. Existing-home sales dropped in June for a third straight month. Purchases of new homes are at their slowest pace in eight months.
Inventory, which plunged for years, has begun to grow again as buyers move to the sidelines, sapping the fuel for surging home values. Prices for existing homes climbed 6.4pc in May, the smallest year-over-year gain since early 2017, and have gained the least over three months since 2012.
“Home prices are plateauing,” said Ed Stansfield, chief property economist at Capital Economics in London. “People are saying let’s just bide our time, there’s no great rush. If we wait six or nine months we’re not going to lose out on getting a foot on the ladder.
“That means we’re now looking at a period in which prices move more or less sideways, or increase no more quickly than growth in incomes, over the next few years.”
Still, market watchers note the housing sector has strong support from a healthy labour market and steady economic growth, which indicates a stabilising trend for home prices rather than anything close to the experience of the crisis when property values plunged.
Shares of DR Horton, which builds starter homes, rose as high as 8.7pc on Thursday morning after it reported a 12pc jump in orders.
“The rate of home sales, new and existing, has probably peaked,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “But it’s not going to roll over. It will gently decline.”
Home ownership still remains out of reach for many Americans, especially for first-time and younger buyers.
“Affordability is becoming a major headache for home buyers,” said Lawrence Yun, the National Association of Realtors’ chief economist. “You are seeing home sales rising in Alabama, where things are affordable. But in places like California, people aren’t buying.”
Mr Stansfield added no one knows how far and how fast borrowing costs may rise as the Federal Reserve raises interest rates. Lenders and borrowers alike are less likely to let credit spiral out of control than in 2005 and 2006. With financing tighter and wage rises in check, “there’s not much scope for prices to continue to increase sustainably” at recent rates.
The cooling, in turn, could curb housing starts “because builders tend to only build what they think they can confidently sell”, Mr Stansfield said.
At the same time “it will decrease the risk of a bust”. (Bloomberg)