Mortgage rates are attractive. Home price gains are easing. Employment is improving. So why aren't more people buying houses? Sales are rising slightly month-to-month but are still well below where they were last year. The answer is pretty simple: Too many people can't afford to buy homes.
"Despite this national slowdown in price gains, price increases continue to be widespread, with 97 of 100 metros [metropolitan housing markets] posting year-over-year price gains—the most since the recovery began," according to Jed Kolko, chief economist at Trulia, a real estate sales and data company. "Furthermore, asking prices in June rose at their highest month-over-month rate (1.2 percent) in 16 months."
Big price gains began early in 2013 as investors swarmed distressed markets, buying up homes to turn around as rentals. While the biggest jumps were in markets like Phoenix, Las Vegas and much of California, other local markets followed, driven not by investors, but by short supply of homes for sale. That led to bidding wars. Sellers, say real estate agents, are now completely out of touch with what buyers can stomach.
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"In May, 40 percent of sellers surveyed by Redfin said that they planned to list their homes above market value even though home sales had dropped by 9 percent since the year before," the real estate brokerage's chief economist, Nela Richardson, said. "Typically it takes sellers six to nine months to adjust to a price change, but this latest shift is longer. Prices have moved down and then up so much over the past five years that it's even more difficult for sellers to have a realistic baseline for what their homes are worth in the current market."
As investors move out, the market is left to regular, owner-occupant, mortgage-dependent buyers. Mortgage applications to buy an existing home are down 10 percent from a year ago, and a report Thursday from the Mortgage Bankers Association finds loan applications to purchase a newly built home fell 5 percent in June from May. While supplies of homes for sale may still be slim, sellers cannot claim the sky is the limit on price, especially with a tighter mortgage market standing in the way.
Accordingly, less than one quarter of the Redfin agents surveyed said it is a seller's market, down from 35 percent just three months ago. Sellers are in the weakest position in the Midwest, while buyers nationwide are walking away from bidding wars because homes are significantly less affordable and credit is still comparatively tight, according to Redfin.