Diane Olick of CNBC has been writing about the facts and reasons the top and bottom tiers of the housing market are collapsing.
Sales of homes priced below $100,000 slipped -13% in March, according to the National Association of REALTORS® (NAR. According to Olick, this downward spiral within the low tier of the market began as much as two years ago when building cheaper homes simply stopped happening.
At the same time builders stopped building cheaper houses, investors decided they could make more money buying whatever cheap houses they could find (some 5M of them) and renting them out instead of reselling them. Investors did NOT replace those 5M cheap houses within the for-sale market.
Bottom line for low priced houses…no new cheap houses being built, no replacement of cheap houses bought by investors, no cheap house inventories, HUGE demand for cheap houses total dwindling sales of cheap houses because there are no cheap houses to buy.
The issue of dwindling sales on the other end of the market, the highest priced end of the housing market, according to Olick, is the change in local and state tax deductions implement via Trump’s 2017 Tax Law.
Jessica Lautz, NAR’s vice-president of research, told Olick, “…I think everyone is nervous about what’s happening now with SALT (State And Local Tax) deductions. We are just going to have to wait and see how much of an impact this is going to have on the high end of the market.”
It’s pretty clear what’s happening in states such as California and New York that have “high ends” of the market.
In Los Angeles, home sales dropped -12% annually in March while inventory simultaneously increased. In the San Francisco Bay Area, home sales dropped -11% in March. In terms of the entire state, Daryl Fairweather, Redfin’s chief economist, told Olick, “…some people are finding they have to move out of the state to afford to buy a home. As a result, home sales are down in metros throughout the state.”
In New York’s Manhattan, home sales are no better. According to Jonathan Miller, president and CEO of Miller Samuel, Q1 2019 home sales fell to the lowest level in a decade and that level was-16.4% below a two-decade average of all quarters.
Olick has written and said that Realtors are hoping lower mortgage interest rates will help mitigate the affordability issues on both ends of the housing market spectrum. However, whether or not Realtors are crossing their fingers, it’s hard to ignore that there have been five consecutive years of +5.4% annualized price increases, too little inventory and building of cheap houses and that there is a large number of young buyers who are renting instead of buying due to either inventory or affordability issues on both ends of the market.
