U.S. home sales declined during this year’s spring selling season, leaving many real estate experts and economists scratching their heads.
According to the National Association of Realtors (NAR), sales of existing homes decreased by 1.7% this June to a seasonally adjusted annual amount of $5.27 million. Additionally, sales as a whole declined by 2.2% year-over-year – the 16th consecutive month of annual sales decline.
Homebuilders are also feeling the pinch; sales of new homes across the nation fell 3.7% in May compared to the previous year, according to data from the United States Department of Commerce.
The recent overall decline is concerning because the period between March and June accounts for about 40% of the year’s total home sales.
With such favorable economic conditions – including the lowest interest rates in the last two years, the lowest unemployment rate in 50 years and increasing wages – many would expect a strong market for home sales. Instead, economists are having difficulty explaining the softening housing market in an economy that has otherwise been booming.
Some believe the spring slump could indicate a longer-term slowdown in the market, at least for this year’s housing sales cycle.
West Coast Cities See Unexpected Declines
On the West Coast, major cities are seeing a decrease in home sales for the first time since 2012. The values of Bay Area, Seattle, and Los Angeles homes, in particular, have nearly doubled over the last seven years.
Although asking prices in these areas have slightly lowered recently, which could attract more buyers, they would likely have to decrease even further for potential purchasers to be willing to do more than just look at homes. Sellers may not be used to declining prices in their area, while buyers may wait to see just how low the prices will go.
According to data from real-estate brokerage Redfin, the median prices of San Jose, Seattle, and Los Angeles properties fell in June as compared to the previous year. In San Jose, for example, it was the seventh month of annual price decreases.
The slowing market on the West Coast is influencing all price points – even starter homes that had some of the lowest inventory available. San Jose’s inventory of homes in the bottom-third price tier almost doubled in June compared to the previous year; prices, on the other hand, declined by 3.8%.
After the housing bust about a decade ago, coastal housing markets were the first to bounce back – thanks to an influx of young and wealthy professionals, as well as low housing inventory that was priced affordably for first-time buyers. However, prices in these markets are now above what even wealthy young purchasers can afford after years of double-digit price increases.
The federal tax code overhaul in 2017 – which capped state and local tax deductions to $10,000 and decreased the mortgage interest deduction – also played a part in lowering the demand for more expensive homes in states with higher taxes.
But, the West Coast is not alone. Other, more expensive cities – like Boston, New York, and Denver – are also seeing weakening housing markets. Denver, for example, had the second-largest increase in starter home inventory in June, at about 63%. Values have increased so rapidly in the city that first-time buyers are having trouble entering the market.
Other Markets See Increases
Although sales have been somewhat concerning in the South and West, there has been a slight rise in sales in the Midwest and Northeast, according to NAR.
Some economists believe lower mortgage rates and additional inventory could attract more buyers and help stabilize the market. This would counteract the current high prices and limited supply in many large cities. At the very least, experts hope that, by the end of the year, existing and new home sales will be comparable to last year.