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The Days Of Easy 10 Percent Price Gains In One Year Are Over

A report from Bloomberg. “Despite a robust U.S. economy, at least as measured by gross domestic product, real home price growth is locked in a cyclical downturn. If that’s not bad enough, it will likely get worse based on the same approach and factors that correctly flagged the housing bust – in real time – in early 2006. Part of the reason for the worsening outlook in home prices is the plunge in housing affordability, which is generally a function of the ability of a family with median earnings to buy a home at the median price.”

“This metric – the National Association of Realtor’s Housing Affordability Index – recently dropped to a 10-year low, partly as a consequence of rising mortgage rates. But it’s not just about higher borrowing costs. Affordability has also been undercut by the steady rise in the ratio of median existing home prices to the median earnings of full-time wage and salary workers.”

“This ratio recently reached a 10-year high, with the median cost of purchasing a home equaling almost six years of a worker’s earnings before easing slightly, according to our research.”

“A downturn in the growth of home prices is unwelcome news for home builders, as growth in total homes sold has actually turned lower and is back in negative territory. Homebuilder profitability is caught in this pincer between falling home price inflation and rising building cost inflation. So it’s no surprise that homebuilder stocks have lost more than a quarter of their value since January, with nearly half of that decline occurring in the last month or so.”

“With the Fed determined to keep hiking rates and broader housing affordability remaining tough, it’s difficult for home prices to gain much traction. And it’s hardly reassuring that the level of real home prices appears to have peaked for the first time since the housing bust.”

“Separately, with rates rising and the broader economy in a stealth slowdown that few recognize, stock prices are vulnerable to corrections, like the 10 percent decline in February and the weakness seen last week. In this context, the home price downturn raises the risk of generalized asset price deflation that could result in a negative wealth effect for the first time since the financial crisis.”

The Tampa Bay Times in Florida. “Home prices keep climbing. Houses sprout in long dormant parts of Pasco and Hillsborough counties. Condo towers rise in our downtowns. It’s no wonder I’m often asked whether we are creating another housing bubble like the one that plunged the economy into a tailspin a decade ago. The short answer: No, not this time around.”

“‘For housing, things point to a general slow down,’ said Robert Dietz, chief economist for the National Association of Home Builders. ‘No big crash or a popping of a bubble because there really isn’t a housing bubble out there.'”

The Dallas Morning News in Texas. “When Realtors chief economist Lawrence Yun was in town last week, he predicted that nationwide median home prices will rise by about 8 percent over the next two years. ‘The days of easy 10 percent price gains in one year are over,’ Yun told real estate agents.”

“For sure that is so in Dallas-Fort Worth. After several years of double-digit percentage home appreciation in North Texas, the latest price forecasts may seem dismal. But a slowdown in home price gains is just what the D-FW area needs at this point in the cycle.”

“The best way to prevent another housing bubble is to let a little air out of the market before things get too overvalued.”

From Builder Magazine. “According to a recent report by Trulia, more than 20% of the houses listed for sale in the Dallas area have had at least one price cut in order to try and move the property. The nationwide figure for properties that have had at least one markdown is hovering around 17% as of August.”

“The number of homes up for sale with real estate agents in North Texas has grown by about 15 percent in the last year to the largest number of houses on the market in six years. Home sales by real estate agents in the area are flat this year. And median home prices through the first nine months of 2018 are up only about 5 percent from the same period last year. The U.S. cities with the largest percentage of price cuts this year include San Diego (26.4 percent), Salt Lake City (24.9) and Warren-Farmington Hills, Mich. (23.6), Trulia found.”

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This Post Has 20 Comments

  1. ‘The days of easy 10 percent price gains in one year are over’

    Unless gold was discovered or inflation was running about that high, shacks should never, ever go up 10% in a year. Much less year after year. There’s your bubble experts – experts that didn’t see squat back in 2006 either.

  3. “When Realtors chief economist Lawrence Yun was in town last week, he predicted that nationwide median home prices will rise by about 8 percent over the next two years. ‘The days of easy 10 percent price gains in one year are over,’ Yun told real estate agents.”

    Someone should save this article. I have a feeling that he will be wrong. BUT dont worry. KEEP BUILDING BOYZ! 8% is still great LOL!

    1. If you look at Dallas, 20% of shacks have a price cut. The builders are reporting cancellations and discounts. Their apartment market is one of the most overbuilt in the country and getting worse by the day. Last month it was reported that commercial real estate permits in DFW were down 44%. And I’ve found reports that out in the big growth areas, Frisco/Wise county, etc, prices are down.

    2. “The WSJ summarized Lereah’s stint at NAR, “David Lereah, former chief economist for the National Association of Realtors, says that because the NAR represented the interests of Realtors, he was pressured to say positive things about the association’s data releases, but that he pushed back in some instances. “My forecasts were always credible and came out of our housing forecasting model,” he says, adding that he sometimes asked the public-relations department to tone down the quotes about the housing data releases they had written for him. Mr. Lereah says he left his NAR position in April 2007 when Move Inc., which has an operating agreement with NAR, offered him more money and a great opportunity to manage a new venture for the company. Mr. Lereah left the company in 2008 when Move canceled the venture.”

      https://theamericangenius.com/business-marketing/where-are-they-now-david-lereah-former-nar-chief-economist/

  4. “The best way to prevent another housing bubble is to let a little air out of the market before things get too overvalued.”

    NAR has correctly predicted 0 out of the last 7 housing bubbles in the US. Soon to be 0 for 8.

    1. A true story about the guy who wrote that. In 2005 I sent him a link to my blog. He wrote back and said, “Interesting. But why a blog about a housing bubble?”

  5. The best way to prevent another housing bubble is to let a little air out of the market before things get too overvalued.

    I’d like to get one of those super high speed photos of a needle (or bullet) entering a very over-inflated balloon and the rubber just beginning to tear at the point of entry to go with this quote. “Just letting a little out”.

  7. Despite a robust U.S. economy, at least as measured by gross domestic product…

    Might as well start right off with a big lie. US GDP growth less debt issuance has been negative for a decade.

    1. Interesting that they say prices are still up year-over-year, but refused to mention they were down the last two months month-to-month.

  9. “‘For housing, things point to a general slow down,’ said Robert Dietz, chief economist for the National Association of Home Builders. ‘No big crash or a popping of a bubble because there really isn’t a housing bubble out there.’”

    Liar liar pants on fire. The run-up in housing since 2011 has been a classic bubble, thanks to trillions in FedBux “stimulus” that has once again blown massive speculative asset bubbles (heckova job, Ben & Janet). And that non-existent bubble is most certainly crashing, as soaring inventories and plunging sales and prices affirm.

  10. “When Realtors chief economist Lawrence Yun was in town last week, he predicted that nationwide median home prices will rise by about 8 percent over the next two years.

    Yun’s track record speaks for itself. Median shack prices are going to crater along with the rest of the Fed’s Everything Bubble. Haircuts of 50% or more are far more likely than any continued increases.

  11. “The best way to prevent another housing bubble is to let a little air out of the market before things get too overvalued.”

    For an industry of dissemblers, you’d think realtors would be better at lying than these lame attempts. We’re way past the “prevention” and “overvalued” phases of the housing bubble, and now the only question is how far down it’s going to crater, and with what velocity.

    1. I went to an open house in my ‘hood this weekend. Not a single solitary soul, possibly due at least in part to the wintry blasts that hit Colorado Springs on Sunday, just the forlorn-looking realtor chica and her vapid assistant. My lack of interest must’ve been self-evident, but we had a cordial and candid conversation where I told her that in my view, Colorado Springs real estate is way overpriced and I have no intention of overpaying when the downside risk greatly outweighs any upside potential. She admitted that the market is cooling and there’s a lot more trepidation on the part of would-be buyers, which plainly is making her job more difficult. She also wondered aloud whether she’d gotten into the RE biz at the wrong time, and I diplomatically kept my silence. She did say she was going to pass some of my comments and observations to the seller, who won’t be thrilled at the reality check. Oh well.

      1. It’s hard to explain something to someone who doesn’t want to hear it. When you work in an industry like RE, your simply a puppet fed lies and the “sell sell sell” hype. I’ve had recent conversations with the listing agents and only 1 out of 4 acknowledged there “may” be a cool down or softening in the market. It’s not even worth my time to convince them not get into a debate so I often bite my tongue. It doesn’t take a scientist to look at listings that are sitting on the market and prices reducing lower and lower to come to the conclusion that yes we have hit the peak and it’s downhill from here. The fun part will be running into these realtors when it’s at rock bottom assuming they haven’t taken a job flipping burgers

        1. I’m not trying to convince anybody of anything. I don’t feel the need. I simply state that all the same indicators that were flashing red before the last housing bubble crash are flashing read again, especially affordability, and from a risk-reward standpoint I’m okay with renting until prices drop substantially. The realtors can do what they want with that information, or disregard it if they so choose. Doesn’t matter to me – ultimately, creditworthy buyers determine market value, and this “buyer” is staying on the sidelines until the value-for-money proposition makes a lot more sense than it does now.

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