According to CoreLogic, home prices rose 4.7% in December 2018, the smallest annual gain since August 2012. Prices were still rising due to a shortage of homes for sale, particularly on the lower end of the market, but rising mortgage rates took a toll on affordability (again) and caused sales to slow.
This pullback in the market translates into fewer markets now being considered as overvalued. Of the 50 markets CoreLogic analyzed, 40% were considered to be overvalued (as compared to 50% considered overvalued one year ago), 18% were considered to be undervalued and 42% were considered to be at value.
The pullback also translates into both helping affordability and “pausing” some buyers to wait for prices to fall even more.
Price gains were shrinking most everywhere except in Southern California during December 2018 where the median price paid for a house gained just 1.1% y/y. “This marked the lowest such gain in an uninterrupted string of y/y increases each month that began in April 2012,” said Andrew LePage, a CoreLogic analyst.
Sam Khater, the chief economist with Freddie Mac, anticipates that price growth will slow to +4.1% in 2019 and +2.7% in 2020.
In January 2019, 15% of all listings had at least one price cut, 2% y/y more than the same time period last year as 39 of the largest 50 markets saw y/y increases in price reductions. The number of sellers who slashed their prices in Las Vegas increased +16% compared with last year.
Days on the market (DOM) also increased in January 2019. Typically, homes in any of the 50 largest markets spent one extra day on the market compared with 2018 but in San Jose, Seattle and San Francisco, DOM increases were 27, 19 and 15 more days respectively.
According to realtor.com, “The median US listing price grew +7% y/y to $289,300 in January 2019, slightly lower than last year’s increase of 8%. This moderate deceleration in home prices is likely attributed to inventory growth in the upper tier of the nation’s most expensive markets.”
Inventory of homes priced at $750,000 and above climbed +12% in January 2019 compared with last year. Inventory of homes priced at $200,000 and below fell by -6% in January 2019 compared with last year.
Mortgage interest rates in early January 2019 dropped to a nine-month low of 4.45% but those lower rates made no difference to sales volume.
Khater with Freddie Mac and seemingly perpetual optimist forecasts that single-family mortgage originations will increase +2.1% to $1.68T in 2019 and will hold steady in 2020. He also predicts that the refinance share of mortgage originations will increase to +27% in 2019 and +24% in 2020.