As we enter the second half of the year and the end of the prime home-selling summer months, most anyone involved as a participant can feel that the upward momentum of the housing market that has been building up since the dark days of the Great Recession during the last decade has started to stall.
Through mid-2018, prices had been on a steady upswing for several years after the plunge in values that started in 2007-8. Many areas – although not all – had regained the values of the pre-recession. Even last fall there was debate over forecasts that there would be a housing downturn in 2019 and into 2020. A popular theory was that the lack of building to keep up with demand – especially here in California – would enable prices to keep appreciating.
But as the first six months of this year have shown, the market is softer and price expectations are having to be adjusted all over the board. What people thought they could get for their home in January or February is not the same today – and it is usually less.
The John Burns Real Estate Consulting Company of Irvine, a firm that advises many builders and developers around the country on marketing and product pricing in the home industry, has studied this new pricing reality statistically and even coined a phrase for this new era of residential housing: the “Great Price Deceleration.”
According to Kate Seabaugh of the Burns Company, price appreciation has slowed across every major housing market. Although deceleration is the slowing of increasing prices to a more moderate level and is not really a price decrease, what has happened in the housing market is that asking prices like those from a year ago or even six months ago are not readily attainable without waiting months on the market – if even then. Basically, the urgency has gone out of the housing market, and we have entered a period where buyers are cautious and will walk from deals unless they get what they want.
The Burns Company has quantified the year-over-year change in various markets from 2017 to 2018, and compared that increase to the year-over-year change from this time in 2018 to today.
The largest deceleration was in the San Jose, California region, where a year ago prices were up 20%. They are down 6% this year from last, a deceleration of 26%.
“Last year, San Jose was frenzied with less than one month of supply and very strong job growth,” noted Seabaugh in her market study. “Builders were selling homes faster than they could build them. In the second half of 2018, the San Jose market slowed substantially due to affordability issues, but conditions have stabilized this year.”
In other California cities the deceleration rate is less, but still significant: San Francisco is down 15%; Los Angeles is down 7%, San Diego and Orange County are down 6% and Riverside-San Bernardino is down 5%. Nationally, along with the California markets, Seattle and Las Vegas have been hit with price decelerations while markets in the Southeast, Midwest and Northeast have had steadier prices – but have not historically had the kind of appreciation that these western housing markets have had. Much of this is due to the lack of affordability in places like California, according to the Burns report.
Moving forward, the company expects resale prices to gain 2% nationally, which is certainly not in recessionary territory but demonstrates that the hot recovery of the last few years has tempered dramatically.
Terry Ross, the broker-owner of TR Properties, will answer any questions about today’s real estate market. E-mail questions to Realty Views at email@example.com or call (949) 457-4922.