Perhaps more so than any other industry, the housing sector is at the mercy of cycles. Past trends have served us well in predicting where we will end up in the near future. In recent memory, the summer months have ushered in a period of buying activity. Conversely, autumn historically represents the start of the slow season for home sales. However, as we have come to learn, cycles can be broken. After a relatively slow spring and summer, compounded by an insufficient level of inventory and higher costs, the stage may be set for housing to experience a small rebound this fall. According to Redfin, home sales should see an encouraging jump as the year comes to an end.
While the transition from summer to fall has yet to take place, more sellers have already begun to lower their asking price expectations. According to a report issued by Redfin, tempered expectations are likely due to a 26 percent decrease in homes being sold above their listed price. That is the biggest drop homeowners have seen since the beginning of this year. The decrease, however, is expected to contribute to a more active fall than we have seen in recent years. Lower prices, near record low mortgage rates and an increasing supply could prompt perspective homeowners to take the next step. For all intents and purposes, the slow summer may contribute to a busier fall season.
“We expect prices to continue to flatten in August, and potentially decline month over month in September or October. If that happens, it will be the first three-month price decline since the fall of 2012,” according to the Redfin report.
Redfin has already acknowledged that 27 percent of homes sold above their list price a year ago. Last July saw a seven percent decrease, as only 20 percent sold above their listed price. It is important to note that there have also been reports of increased negotiations during the same period. Sellers are more likely to take less now than they were at this time last year, and buyers know it.
CoreLogic has identified a 7.4 percent increase in home prices in the year ending in July. However, since then, the rate in which homes are appreciating has become less aggressive. While price growth has slowed down, it hasn’t prevented the market from experiencing another year of year-over-year price gains. In fact, only one state (Arkansas) saw a decline in year-over-year prices. On the other hand, the following states experienced record price highs:
- District of Colombia
“While home prices have clearly moderated nationwide since the spring, the geographic drivers of price increases are shifting,” said Sam Khater, deputy chief economist at CoreLogic. “Entering this year, price increases were led by Western and Southern states, but over the last few months Northeastern and Midwestern states are migrating to the forefront of home price rankings.”
The current rebound has helped prices return to within 12 percent of their previous highs prior to the recession. However, as the recovery wears on, it is demonstrating an increased propensity for localization. Buyers entertaining the idea of purchasing this fall will notice the impact of the relatively slow summer. Traditionally, housing slows down in the fall. Home searches in September and October combined are 6 percent below the annual average, according to Trulia. Fortunately, this fall may stray from the typical cycle.
“Markets where search activity is high in autumn tend to have warm and dry Septembers and Octobers relative to their local climate in the rest of the year,” according to Trulia’s chief economist, Jed Kolko. “In the Bay Area and much of the West Coast, September and October typically continue to be warm and dry—which prolongs the house-hunting season. In San Francisco, in fact, September and October are the warmest months of the year.”
According to Nela Richardson, Redfin’s Chief Economist, the rest of 2014 is projected to finally produce strong housing activity. “Homebuyers who have been willing to wait for better deals are starting to be rewarded for their patience, as sellers drop listing prices to meet buyers’ more value-focused expectations,” Richardson said.
“Two market developments in July are spurring this change in housing activity as the market transitions from the summer to the fall buying season,” she added.
1.) Slower Home-Price Appreciation
As of July, price growth showed signs of easement. Essentially, gains have flattened out.
“Even we were a little surprised by the consecutive month-on-month declines in house prices during April, May and June on the new monthly Case-Shiller national measure,” said Paul Diggle, property economist with Capital Economics. “Echoing that message, the Case-Shiller 20-City measure of house prices fell during the latest two months.”
2.) The End Of A Seller’s Market
As early as October of last year, HousingWire reported that sellers were losing their advantage in the market. As a result, the market appears to be balancing itself out.
“We expect the confluence of these two trends to drive an unusual surge in home sales this fall. We also expect prices to continue to flatten, and to potentially decline month over month in September or October. If that happens, it will be the first three-month price decline since the fall 2012,” Richardson concluded.