Economists reported This Week in Real Estate that “sellers will keep their foothold for another couple of years at least, though with weakened negotiating power thanks to basic economic fundamentals like a growing job market rather than one that has been artificially bolstered.” Below are a few highlights from the second week of November that influence our business:
Single-Family Permits: Declines in the Midwest and Northeast
Over the first nine months of 2018, the total number of single-family permits issued year-to-date (YTD) nationwide reached 664,665. On a year-over-year basis, this is a 5.7% increase over the September 2017 level of 628,858. The preliminary results from the New Residential Construction Survey are similar, year-to-date single-family permits over the first nine months of 2018 was, 663,800 which is 5.5% ahead of its level over the same period of 2017, 628,900. Year-to-date, single-family permits grew in the Southern and the Western regions of the country, while the Midwest and Northeast declined by 0.9% and 6.4% respectively, compared to September 2017 YTD. The Western region had the highest growth in single-family (11.5%) while the South recorded the highest multifamily permits growth (14.9%) during the last 12 months.
Real Estate Markets Cooling Across the Country, and it’s Not Just the Winter Effect
In December 2008, almost a decade ago exactly, Case-Shiller posted a record 18% price drop in home values across the country as the subprime mortgage crisis reached fever pitch. After a slow and painful recession period, economic prosperity pushed the market out of recovery mode and into a full-fledged real estate boom characterized by double-digit price growth, rock-bottom inventory and surging buyer demand over the past few years. It’s been the lowest of lows, followed by a glorified golden age for the country’s trillion-dollar residential real estate business. But a new normal, one that’s neither ice cold nor fiery red, does appear to be taking shape. “There is a definite shift,” said Lawrence Yun, chief economist of the National Association of Realtors and fellow Forbes contributor. “I would characterize the current state as normalizing and not truly a buyer’s market. It was clearly a seller’s market in spring, but now things appear to be more balanced.” Rest easy, no one’s warning of a housing bust 2.0 danger zone. The current price run-up wasn’t artificially bolstered by mortgage fraud, but rather economic fundamentals including a growing jobs market, and that thing we all learned in Economics 101: supply and demand. In fact, economists forecast that sellers will keep their foothold for another couple of years at least, though with weakened negotiating power.
Most Buyers Don’t Expect House Hunting to Get Easier Soon
Only about 2 out of every 10 prospective home buyers (people looking to buy a home in the next year) expect the search for a home to get easier in the months ahead. The majority, about 7 out of 10, instead think house hunting will get harder or stay about the same. This opinion is shared among buyers of all ages, as only 15%-21% of each generation expects the search for a home to get easier soon. These findings come from NAHB’s Housing Trends Report (HTR) for the third quarter of 2018. Another way to find out buyers’ perception about the inventory of available housing in their markets is to ask if they see the number of for-sale homes (with their desired features and price point) rising or falling compared to three months earlier. In the third quarter of 2018, 29% said they could see more such homes vs. 61% who said they saw fewer/about the same number as before. Put shortly, most prospective buyers have seen no improvement in the availability of housing. A majority of buyers in each generation shares that opinion.