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People Have Been Receiving News Of A Looming Slowdown

A report from the Star Tribune in Minnesota. “The Twin Cities housing market, after one of the most frenetic summers on record, is beginning to cool. Home sales are down from a year ago, more sellers are cutting their asking price and mortgage rates are climbing.”

“Aaron Terrazas, a senior economist at Zillow, said that although the economy is strong, rising rates can cause a psychological chill. ‘People have been receiving news of a looming slowdown,’ Terrazas said. ‘They’re starting to take that into account, and they’re being more conservative in their bidding than a year ago.'”

“‘Buyers are weary,’ said William Huffman, a sales agent with Re/Max Results in Minneapolis. ‘They’re sick of hearing that it’s a sellers’ market.'”

“Given the rapidly changing nature of the market, Huffman and other agents are warning sellers that buyers are on the defensive. He’s now including a clause in some listing agreements that asks sellers to approve an automatic price reduction if the house doesn’t sell in 10 to 14 days.”

“He used that strategy with Kayla and Matt Dutton, who listed their house in Otsego right before Labor Day. They had numerous friends and family members who sold their houses earlier in the spring who had multiple offers, so they were optimistic when Huffman initially listed the house at $300,000. But when it didn’t sell within a week, they started to get nervous.”

“Then a $10,000 price reduction triggered multiple bids. ‘We decided to swallow our pride and discount it a small amount to attract more buyers,’ Kayla Dutton said. ‘It’s still a great sellers’ market, but not as hot as it was a short while ago.'”

“Data from MAAR show that so far this year about a quarter of all homes that sold through a Realtor in the 13-county metro had a price reduction, a steep increase from this summer.”

“The bulk of the discounts are on the most expensive houses in the Twin Cities, according to Zillow. Among the top one-third most-expensive listings, one in five sellers offered a discount — nearly twice as many as the bottom one-third of all listings.”

“Those price reductions tended to be most common in third-ring suburbs that were developed in the 1980s and 1990s and are flush with big houses that need updating. In Chanhassen and Maple Grove, for example, price cuts were being offered on nearly one in four listings.”

“More houses are also starting to come on the market. During the last week of September there was a 15 percent increase in new listings compared with last year, according to MAAR.”

“Nancy Yang, a broker associate in Woodbury, says many buyers already believe homes are overpriced, so she’s advising sellers to make price adjustments ahead of what she expects to be a shift in the market.”

“‘It’s been primarily a sellers’ market the last two years,’ she said. ‘Our buyers were getting frustrated and tired of losing their dream homes over the frenzy of multiple offers. They decided to rent instead and wait for prices to stabilize.'”

From KARE 11. “One percent in one year. The jump in mortgage rates to just over 5 percent might not seem like much, especially for those who recall paying 18 percent in the early 1980s.”

“But the leap is a big one for first time homeowners, especially those already struggling to buy. Jessica Covell and her husband finally found a house in Coon Rapids last winter after losing two others to higher bids. Desperate to move from North Carolina, they paid $20,000 above the asking price, spending $80,000 more than they did just five years ago for a house nearby of a similar size.”

“‘It was very frustrating,’ said Covell. ‘That was our complete max. But even though our mortgage was more than what we wanted it to be, we love our house and we love the area we live in, so it was completely worth it.'”

“But new data from the Minnesota Association of Realtors suggests for many buyers that may not be an option. While Twin Cities inventory is still low, the last six months have seen a rise in new listings, which may shift local housing from a seller’s market to one that’s more balanced.”

“‘Everything is an ecosystem,’ said Long Doan, CEO of Realty Group.”

“The report shows nearly 20 percent of Twin Cities homes listed above $300,000 have been reduced. Yet entry level homes costing less than that are still in high demand, and with rates now rising that could price new buyers out. The rate jump of just 1 percent could drive up the price of an entry level house $30,000 to $40,000.”

“‘They now have to worry about what they can offer,’ said Doan. ‘They can’t be as aggressive.'”

This Post Has 27 Comments
  1. ‘Nancy Yang, a broker associate in Woodbury, says many buyers already believe homes are overpriced, so she’s advising sellers to make price adjustments ahead of what she expects to be a shift in the market’

    Nancy you doom and gloomer, don’t panic!

    ‘Our buyers were getting frustrated and tired of losing their dream homes over the frenzy of multiple offers’

    ‘Buyers are weary…They’re sick of hearing that it’s a sellers’ market’

    It’s weird how they describe this as a race or something. Like we’re all out there every day, buyers and sellers. It’s more like this:

    ‘Jessica Covell and her husband finally found a house in Coon Rapids last winter after losing two others to higher bids. Desperate to move from North Carolina, they paid $20,000 above the asking price, spending $80,000 more than they did just five years ago for a house nearby of a similar size.’

    ‘It was very frustrating,’ said Covell. ‘That was our complete max.’

    Well you are locked in Jessica. Roll with it!

  2. “Then a $10,000 price reduction triggered multiple bids. ‘We decided to swallow our pride and discount it a small amount to attract more buyers,’ Kayla Dutton said. ‘It’s still a great sellers’ market, but not as hot as it was a short while ago.’”

    Gotta cycle through the last of the Knife Catchers & Greater Fools before the real price reductions kick in. The Minneapolis RE landscape is going to be littered with the financial bleached bones of the fools who just couldn’t wait to rush in.

  3. “‘It was very frustrating,’ said Covell. ‘That was our complete max. But even though our mortgage was more than what we wanted it to be, we love our house and we love the area we live in, so it was completely worth it.’”

    The thing is, Jessica, it’s not your house until the last mortgage check clears. And call me Nostradamus, but I predict by this time next year, you and hubby are going to be hating life as “your” shack keeps going deeper underwater.

    1. Even then, there’s this little matter of property taxes. A house is an asset that requires significant annual payments to retain possession of.

  4. “‘It’s been primarily a sellers’ market the last two years,’ she said. ‘Our buyers were getting frustrated and tired of losing their dream homes over the frenzy of multiple offers. They decided to rent instead and wait for prices to stabilize.’”

    Well I wasn’t part of the bidding / buying frenzy but I did sell my shack to a FB and decided I would rent until the tulip mania was over. Now that we seem to have “cooled” down, what do we have. More inventory, price drops, panicked FBs now trying to get out and the greedy speculators that wanted to sell at the absolute peak with there shacks going on the market with 2017 price tags. The houses sit and trickle down in prices which from a buyers perspective, doesn’t promote an urgency to buy. Until a mortgage payment goes below the cost to rent most will continue renting and watching this one unfold.

    1. “Until a mortgage payment goes below the cost to rent…”

      For historical perspective, the early 1990s recession started in the summer of 1991. California housing prices didn’t bottom out until 1996 or so, at which point you would have been considered crazy to buy. After the 2007-2009 episode, Quantitative Easing focused on driving up housing prices was implemented before a fundamentals-based equilibrium was reached in California, so we will never know how long it would have taken in that case. Perhaps if the Trump Fed decides to let the market set housing prices, we will see true price discovery after the present wave of mania crashes.

      1. Patience is the key word for me. I agree it could take much more time and for those who have the patience, they may reep the reward of waiting it out.

  5. “He’s now including a clause in some listing agreements that asks sellers to approve an automatic price reduction if the house doesn’t sell in 10 to 14 days.”

    I can’t be reading this correctly. Is he really saying that he wants to fire a client if they wont drop the price within 2 weeks if their house has not sold? I am all about prices dropping, but this is outrageous. It takes months to sell a home in a balanced market. I have heard 6 months thrown around. Yet this smug POS is so used to bidding wars that he wants to dump clients if it takes more than 2 weeks to sell a home because he doesn’t want to put in much of an effort, and is just interested in a fast payday. Talk about being lazy and entitled. Why don’t the sellers kick him out immediately by the mere suggestion of such nonsense?

    It brings back bad memories for me. I remember looking at houses years ago. Realtors literally got mad at me if I didn’t put in an offer after the first week after seeing less than 10 houses. They then scolded me if I told them I thought they were asking too much. They were making insane amounts of money with little or no education.

    Don’t get me wrong. I think you should drop the price without receiving much interest after a few weeks. I just am upset that the realtors want the right to insist on it.

    1. I guess I am missing your point, unless used home sellers are colluding to force repricing. If you don’t agree, find a used home seller who will allow you to keep your home on the market at a price where it won’t sell indefinitely.

      1. I don’t believe that realtors should contractually be allowed to dictate pricing. Have a discussion with your client about what is reasonable under the current market, and if you feel their expectations are unreasonable move on. Making it a contractual condition is a conflict of interest in a practice area that already has way too many conflicts.

    2. +1 here Tim. I did not read into it with that mindset, I just focused on the lowering of pricing which is good. Now looking at it from the “entitled” realtors angle, I agree that these POS UHS scumbags have no right dictating what price a seller wants to have his or her home listed for even if it sits unsold due to there own greed. The mere sense of entitlement realtors are holding on to is disgusting and yes we all like easy quick money but we are not entitled to it.

  6. “While Twin Cities inventory is still low, the last six months have seen a rise in new listings, which may shift local housing from a seller’s market to one that’s more balanced.”

    There’s a pervasive view (i.e. narrative) among those in the RE sector that prices never go down, only plateau, or flatline. Sorry, but as housing bubble (and collapse) 1.0 showed, RE is cyclical; there are tops and bottoms, with the highs and lows made now more extreme thanks to massive central bank and gov’t. intervention.

    “The most brilliant propagandist technique will yield no success unless one fundamental principle is borne in mind constantly – it must confine itself to a few points and repeat them over and over” – Joseph Goebbels

    “The truth is incontrovertible. Malice may attack it, ignorance may deride it, but in the end, there it is.” – Winston Churchill

    “Facts do not cease to exist because they are ignored.” – Aldous Huxley

    “You can ignore reality, but you can’t ignore the consequences of reality.” – Ayn Rand

    They may say what they like, but the outcome will be similar to the first bubble. We’re just getting started, IMHO.

    I would add that the RE market would be more “balanced” (i.e. less speculative; more normal) if RE hadn’t been transformed from housing shelter to a commoditized asset, courtesy of your central banker and their cohorts in the FIRE cartel. From bubble to bubble. Rinse and repeat. This is no way to run an economy, or a country.

    1. “it must confine itself to a few points and repeat them over and over”

      I have to regularly deal with lots of folks who practice this approach.

    2. “You can ignore reality, but you can’t ignore the consequences of reality.” – Ayn Rand
      True, but you can blame the consequences on other factors. You saw yesterday the discussion between people that think the 2007 housing crash was caused by deregulation and those that believe that the primary cause was government intervention in the housing market. I would the argue that the slow recovery under Obama was caused by increased government regulation and when Trump deregulated the economy took off but the left will never admit it. Thus while we all see the slow 1.9% growth under Obama and the growth around 4% with Trump, the consequences of reality might be there but there is often no agreement on what caused the reality. So True socialism has failed whenever it has been tried but it does not stop people from failing to see that the consequences of socialism relate to the implementation of socialism.

  7. We are in what can only be termed “the great inventory build.” It is across all markets in the US and, perhaps, the world.

    This is the time for great patience. It will be several years before any “good deals” can be found. The discounts we are seeing right now are chintzy compared to what will be forthcoming in the future.

  8. I went through Bubble 1 on this blog with Ben, and you guys helped me to decide to put all of my 401k into cash near the peak. I remember the plan’s administrator calling me and telling me not to panic and that I may regret it.

    I reinvested it after about a 25% drop (although some of you still thought it was too early – they were actually right about being too early, but timing the bottom is tricky and I was comfortable with the risk given the length I intended to hold). I made a several 100k off that decision and remain greatful.

    It seems to be moving much faster this time. We went from no admission to even the possibility of a housing bubble, to discussions of a slowdown in pretty much all major metro areas in just a few months. Some areas are already starting to see valuation drops as much as 4-5% from peak levels, and I think once we hit the 10% mark across several major cities there will be no recovery without a major recession and massive job loss. I haven’t pulled money out of the markets yet, but haven’t been investing in them for more than a year. I hope we get a bounce this week as I want to start selling my stock holdings at least from my taxable accounts. The speed of this train is frightening. The only outliers now are the housing markets that haven’t experienced a slow down. Investors want out now, and even the masses now realize its not a good time to buy. Are there even any major cities were inventories are not rising right now and appreciation not slowing? Knowing we are going to implode is the easy part, minimizing personal risk is a bit harder.

    1. I heard a boatload of “don’t try to time the market ” last week from a financial planner. To some degree I think he’s right, given the prospect of ad hoc bailouts destroying what would otherwise be a good buying opportunity for those who sat out a mania.

  9. “‘It’s been primarily a sellers’ market the last two years,’ she said. ‘Our buyers were getting frustrated and tired of losing their dream homes over the frenzy of multiple offers. They decided to rent instead and wait for prices to stabilize.’”

    The best way forward would be for prospective buyers to just collectively sit on their hands and either rent or live in Mom’s basement until sellers start asking for amounts that align qit buyer incomes and newly higher interest rates. Last year’s prices are out of reach at current interest rate levels.

    1. “Last year’s prices are out of reach at current interest rate levels.”

      One of the worst shifts in Sheeple thinking about how much they can afford to pay for a home is the belief is that it is somehow tied to what they qualify for. We need to go back to prices that not only allow people to qualify for the mortgage, but to pay off their home in full prior to retirement and still have enough savings for a comfortable retirement taking into account health care costs and inflation. I read yesterday that about 40% of people are expected to retire in poverty. I believe that number is optimistic unless they start acting a little more educated when it comes to finance. I know people in their 50s taking out 30 year mortgages with little down and almost no retirement savings.

  10. The Outlook
    Housing Market Positioned for a Gentler Slowdown Than in 2007
    As frenzied as the market has felt in recent years, it never came close to the level of the last boom by most measures
    By Laura Kusisto
    Oct. 13, 2018 8:02 a.m. ET

    The U.S. housing market is running out of steam, but its slowdown looks nothing like the historic collapse that took down the whole economy in 2007.

    Home-price growth has slowed for the last several months and is expected to continue slowing as mortgage rates rise. The volume of existing home sales has fallen compared to a year earlier for six straight months. In August, the three-month moving average of new single-family homes built was just over 860,000, down from nearly 900,000 at the beginning of the year.

    To Read the Full Story
    Subscribe

  11. The MSM commentators who repeatedly say that the housing correction this time won’t be as bad seem to overlook the massive price reductions that are already happening at the high end, even while the economy is still booming. What happens in the next downturn should be interesting, given that housing has already begun to crash.

    Hamptons Mansion Sees 50% Price Cut
    The approximately 6,500-square-foot home now asks almost $6 million
    BY Willa Rubin
    | ORIGINALLY PUBLISHED ON October 12, 2018 | Mansion Global

    An Amagansett, New York, home that has been on the market for more than a year is taking another price cut, nearly halving its original ask price.

    The approximately 6,500-square-foot house was first listed in 2016 for $11.5 million by Brown Harris Stevens, the listing agent confirmed. It has changed brokerages over the course of two years. On Oct. 5, Douglas Elliman got the listing and reduced the house’s asking price to $5.995 million from its most recent ask of $7.995 million.

    The current owners “probably spent what we’re asking for the house,” but “if you want to sell it, you have to price to the market,” and its new price now matches that, said Enzo Morabito, the listing agent.

    1. Trump changed the economics of housing for the rich or at least for those who think they can afford a million dollar house. He essentially took away the tax subsidy for the rich although the MSM and the Democrats will never admit it. The tax changes do not mean very much for people who can still deduct all their interest and all their property taxes which is 90% of America. The mania was strongest for the high end and the correction will be most severe for the high end. I do not think that you should extrapolate the same type of changes for people who live in average houses in flyover territory.

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