Housing Market Gains in the 3rd Quarter
Despite the slowdown in the rate of home price appreciation as reported by ATTOM Data Solutions This Week in Real Estate, homeowners who sold in Q3 2018 realized the highest average price gain since Q2 2007. Below are a few highlights from the fourth week of October that influence our business:
Pending Home Sales Stabilize
Pending home sales increased in September but have decreased on an annual basis for nine consecutive months. The Pending Home Sale Index increased 0.5% in September but remains down 1.0% year-over-year. The Pending Home Sales Index (PHSI) is a forward-looking indicator based on signed contracts reported by the National Association of Realtors (NAR). The PHSI increased to 104.6 in September, from 104.1 in August. The PHSI increased 4.5% in the West and 1.2% in the Midwest but decreased 0.4% in the Northeast and 1.4% in the South. Year-over-year, the PHSI increased 3.3% in the South, but declined 1.1% in the Midwest, 2.7% in the Northeast and 7.4% in the West.
U.S. Median Home Price Increases 4.8% in Q3 2018, Slowest Rate of Annual Appreciation Since Q2 2016
ATTOM Data Solutions released its Q3 2018 U.S. Home Sales Report on Thursday which shows that U.S. single family homes and condos sold for a median price of $256,000 in the third quarter, up 1.0 percent from the previous quarter and up 4.8 percent from a year ago – the slowest pace of annual home price appreciation since Q2 2016. “The continued slowdown in the rate of home price appreciation nationwide and in many local markets is a rational response to worsening home affordability – which has deteriorated at an accelerated pace this year due to rising mortgage rates,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “Markets not experiencing this price appreciation cool down may have more of an affordability cushion to work with, but some are in danger of overheating if home price gains continue to run hot.”
“I think the key factor underpinning the decelerating price appreciation is the impact of rising rates on the monthly payment,” said Tendayi Kapfidze, chief economist at mortgage marketplace Lending Tree. “Absent financing structures that allow a borrower to increase leverage while mitigating an increase in the monthly debt service, buying power is decreasing across the board. “This especially affects the marginal buyer who doesn’t have a lot of wiggle room,” Kapfidze added. “And if you remember your econ 101, the marginal buyer transacts at the market clearing price. So, while there is still strong demand, some potential buyers are falling out of the market and others are moving down in price with the aggregate effect being a moderation in price appreciation.”
Homeowners who sold in Q3 2018 sold for an average of $61,232 more than their original purchase price, the highest average home seller price gain since Q2 2007. The $61,232 average home seller price gain in Q3 2018 represented an average 32.3 percent return on the original purchase price, up from an average 31.6 percent return in the previous quarter and up from an average 31.4 percent return in Q3 2017. Among 156 metropolitan statistical areas analyzed for average home seller gains, those with the highest average home seller percentage gains were San Jose, California (108.7 percent gain); San Francisco, California (77.3 percent gain); Seattle, Washington (69.8 percent gain); Santa Rose, California (67.9 percent gain); and Salem, Oregon (63.4 percent gain). Along with San Jose, San Francisco and Seattle, other metro areas with a population of at least 1 million and average home seller percentage gains of more than 55 percent were Portland, Oregon (59.6 percent gain); Boston, Massachusetts (58.1 percent gain); Los Angeles, California (58.0 percent gain); Nashville, Tennessee (56.5 percent gain); and Salt Lake City, Utah (56.5 percent gain).
Homeowners Are Staying Put Longer Than Ever Before
Homeowners are staying in place longer than ever before, despite the growing amount of equity in their homes. A new report from First American – a provider of title insurance, settlement services and risk solutions for real estate transactions – reveals that the median tenure for homeownership has jumped to 10 years, up 10% from last year. By comparison, the median tenure in the pre-crash days of 2007 was four years, and in the aftermath of the market’s meltdown – when many homeowners couldn’t move because they were underwater on their properties – the median tenure was seven years. “There is less incentive to sell your home if borrowing the same amount from the bank at today’s rates will be more expensive than your existing monthly mortgage payment,” said Fleming. “As rates rise, many existing homeowners are increasingly financially imprisoned in their own home by their historically low mortgage rate.” But, home prices have recovered over the last decade, Fleming points out, meaning that many homeowners have accumulated enough equity to sell their homes at a profit.