March 22, 2017

The Markets That Have Recovered Too Much

A report from the Denver Post in Colorado. “There were 25 percent more starter homes available in metro Denver at the start of 2017 than at the start of 2016, and about a fifth more trade-up homes, according to Trulia. Something may be changing in the market. The starter-home inventory has seen annual increases for four straight quarters, and with each passing quarter, the percentage change is getting larger and larger.”

“Trulia’s chief economist Ralph McLaughlin puts Denver in the category of markets that have recovered ‘too much’ — along with cities like Seattle and San Francisco. If home-price gains outstrip income gains by too wide a margin, or if the price gaps between each tier are too large, it can make it harder for a housing market to function. ‘If it is difficult to afford your next house, you may be more inclined to stay put and renovate your existing home. It won’t ever go on the market,’ he said. That depresses inventory, further driving up prices.”

“For the bottom-third of earners, adjusted to exclude renters, affording the median-priced starter home would consume 41.1 percent of income. Most lenders would reject that loan, absent a very large down payment to bring that ratio down.”

“That might offer one explanation for the rise in the starter home inventory — more would-be buyers of starter homes are now priced out of the market. Another explanation comes on the supply side. The Denver Metro Association of Realtors found a large 19.2 jump in the inventory of condos available for sale last month, which it linked to more mom-and-pop landlords, who snapped up bargain properties during the downturn, now taking advantage of higher prices to cash in.”

The Union Tribune in California. “The San Diego County median home price dropped 1 percent in February to $492,000, CoreLogic said. Typically one of the slowest months of the year, the February median price has increased on average just 1.4 percent from January since 2000. San Diego’s median hit $507,500 in October but has been under half a million dollars since. It is still below the nominal 2005 peak of $517,500 (or $644,487 in 2016 dollars). There were 2,605 home sales in February, down 405 homes from its average since 2000. Chris Thornberg, economist and founding partner of Beacon Economics, said three factors may impact buying as the year goes on — higher mortgage interest rates, economic uncertainty with Trump administration policies and a possible slowdown of American home purchases by foreigners.”

“‘Any of those could be a realistic reason for slowing activity,’ he said, ‘and any of these reasons could say to us this summer won’t be as good as last summer from a sales and price perspective.’”

“The February resale home median price in San Diego County was $535,000. The newly built home price in February, $565,000, was at one of the lowest points in the last two years, likely the result of few single-family homes being built. There were just 170 newly built homes sold in February — roughly half of what was sold in the summer.”

From Bloomberg on New York. “In Manhattan’s East Village, buying an apartment beats renting within four years. In the Soho area just a few blocks away, it would take 31 years before owning makes more financial sense. That analysis of the so-called tipping point—the amount of time it would take for the cost of renting to equal or exceed the cost of buying a comparable home—is based on Bloomberg’s new exclusive, interactive map of real estate prices by neighborhood in Manhattan and Brooklyn, using fourth-quarter data from StreetEasy.”

“In a market weighed down by a glut of new luxury developments and resale listings that continue to pile up at ambitious prices, buyers have more choices and negotiating power. The leasing market too is facing a supply surge, and as landlords offer concessions and cut prices to keep vacancies in check, renters looking to buy have added reason to delay a purchase—or bargain harder.”

“In midtown Manhattan, sales in the three months that ended Dec. 31 carried median discounts of 8.3 percent from their initial asking price—the biggest reductions in the borough. Buyers in the West Village got median reductions of 5 percent. In Chelsea, sellers whittled a median of 4.6 percent from their asking prices to strike a deal. In many of Manhattan’s established neighborhoods, more than 40 percent of sales listings in the quarter got a price cut. On the Upper West Side, 42 percent of listings were discounted, and on the Upper East Side, the portion was 45 percent. The Lenox Hill area had the highest share, with 51 percent.”

The Miami Herald in Florida. “The middle of the South Florida home sales market is hot while the rest of the market is not. this mid-market boom comes as sales of existing single-family homes and condos each decreased 10 percent year over year, from a total of 2,039 to 1,835. Inventory increased for condos and decreased in the single-family category. Single-family homes have a 5.9-month supply, which indicates the top end of a seller’s market. Condo supply grew to 13.7 months, which indicates a strong buyer’s market.”