Appraisal Blog

Market Conditions Early 2019

Following two consecutive months of increases, existing-home sales declined in the month of December, according to the NAR (National Association of Realtors).

None of the four major U.S. regions saw a gain in sales activity last month.  Lawrence Yun , NAR’s chief economist, says current housing numbers are partly a result of higher interest rates during much of 2018.

According to the US Census Bureau and the Department of Housing and Urban Development, the number of new single-family houses sold reduced last month - from 666,000 in May to 631,000 in June. Sales of existing homes also reduced from 5.41 million in May to 5.38 million in June. This was a sharp contrast to the expected 0.5% increase.  
 However, home prices and sales are not the only worrying statistic.
 
The listing prices continue to rise steadily despite a slowdown in sales. Mortgage applications to buy new and existing houses have also been falling as borrowers stay away from expensive loans. Currently, the median selling price for a house is $276,900. Except in rare cases, nobody wants to sell a home for less than $250,000. 
 
Although some experts may argue that the slowdown in sales is due to inventory, this explanation is questionable because housing supply increased from 4.1% in May to 4.3% in June. If inventory was to blame for low house sales, an increase in supply would surely result in improved sales, but that is not the case.
 
Despite the market experiencing reduced demand for real estate purchases, developers have refused to lower prices. Many of them believe that the U.S. market statistics are strong and sales will eventually rise. 
 
Developers refuse to lower selling prices citing increase in construction costs as the main reason for the high pricing. Most of them claim that labor has become more expensive. Since they cannot pay their workers an amount lower than the minimum wage, they have to transfer the costs to the buyer so that they can make a profit. 

Another reason why the prices are really high is construction preference. At the moment, most contractors and building companies prefer to work on high end properties because the work pays more. As a result, the construction of starter homes - which are more affordable - has reduced. 
 
 Another reason why lower-end or affordable homes have become scarce is the laxity by investors to sell them. After the housing crash of 2008, smart investors bought the low-end homes and converted them into lucrative rentals. Due to their high earning potential, many owners are reluctant to sell. 
 
The average 30-year mortgage has a fixed rate of over 4.5% is because housing prices are increasing, and sales are reducing. Banks do not want to risk financing a mortgage that may make it difficult for them to recover their money in case of a default. Given the current market situation, a foreclosure could take months to find a buyer. 
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Sunday, 29 January 2023