There are signs that after years of soaring house prices the US housing market is set for the worst slump in as many years because house buyers can no longer afford to buy. Properties that only a year ago would have been sold in days are now sitting awaiting buyers for many weeks. Asking prices are also coming down sharply. Where a three-bedroomed property might have been listed for US$ 600,000, it is now on the market for just US$550,000 in Seattle's northern districts.
The US housing market was a hotbed in cities like Seatle and Austin, Texas, as well as in Silicon Valley, but now there are signs that the boom is over. Rising mortgage rates and accelerated house prices are pricing buyers out of the market.
Figures released in July showed that existing house sales fell sharply in June, the third month in a row for decreases. Housing stock, which for many years was rather depleted, is now growing again, as potential buyers opt to rent for longer. This is having a negative affect on house prices. In May 2018, house prices rose by a modest 6.4%, which was the smallest year-on-year increase since spring 2017, according to the Federal Housing Finance Agency.
Leading economists predict that on a national level US house prices will only gain 5% in 2018 and will see an even lower increase of 3% next year.
Growth in Housing Stock
In some of the most expensive markets, where buyers are no longer able to afford homes, Redfin Corp reported rising supply of housing stock. In California's San Jose housing stock rose by 12% in June of this year, compared to the same month in 2017. In Portland, Oregon, housing stock grew by 32% and in hot property market Seattle supply increased by 24%, compared to the same period last year.
Despite the US economy doing rather well, a consumer-sentiment survey conducted by the University of Miching in July this year showed that only 65% of US citizens believed it was a good time to buy a property. That was the lowest percentage since 2008, the year when the world-wide recession hit the US property market hard.
Many realtors and economists believe that US house prices are levelling out rather than actually slumping. They believe that the rate of house sales for both the new and second-hand markets have already peaked and will now fall to reach a plateau. The rate of homeownership in the second quarter of 2018 was still 64.3%, a small increase from 63.7% in the same quarter of 2017, according to the US Census Bureau's report released this summer.
Official figures released by S&P CoreLogic Case-Shiller in its 20-city index of property prices show that there is a gentle downturn in evidence. Property prices rose 6.6% in the 12 months ending in April 2018. New York, San Francisco and Washington all reported downturns in house prices. Lack of affordability is the most cited reason for the decrease.
First-time and young buyers find it hard to raise the money necessary for a deposit, let alone service their mortgage payments month by month. For the second-hand homes market the average price rose to a record US$276,900 in June 2018, according to the National Association of Realtors.
Lawrence Yun, the organisation's chief economist, said in a statement that affordability was a "major headache for homebuyers". He added that home sales were still rising in Alabama due to affordability, but in California people could no longer afford to buy.
With low unemployment and a robust economy there is also the risk that mortgage interest rates will go up in the near future. For investors the good news is that more housing stock is coming on the market, but it will be a waiting game to see when prices will level out to become more affordable again.