The exclusive Hope Ranch area on Dec. 4, 2017, over Santa Barbara, California.George Rose / Getty Images file
It’s peak home-buying season, and conditions in some of the country’s previously super-heated housing markets are dramatically different from a year ago, when homes were hard to come by and prices were sky high.
In expensive coastal markets, sales and prices are seeing double digit declines, according to analysis from Redfin. Year-over-year sales dropped by 19 percent in Los Angeles; 16 percent in Orange County, California; 15 percent in Seattle; and 14 percent in San Francisco.
“Home prices got so expensive in those places — we saw double-digit price growth in the last couple of years — so this is kind of a correction year for those markets,” said Daryl Fairweather, Redfin chief economist.
In more affordable parts of the country, such as Milwaukee and Minneapolis, home sales are doing quite well and prices are going up, Redfin’s data shows. Several large markets on the East Coast with affordable prices also saw big annual sales gains, with Baltimore up 35 percent and Orlando up 24 percent.
“It’s all about affordability,” said Lawrence Yun, chief economist at the National Association of Realtors. “Prices had reached a point in some areas that they were beyond the reach of many potential buyers. As a result, prices have dropped and sales have slowed.”
The affordability factor, combined with tax law changes, are hurting the market for luxury homes at the top end of the market.
“Before, you could fully deduct mortgage interest and property taxes,” Yun said. “Now, as part of the state and local income tax limit of $10,000 that many people have, those expensive home real estate property taxes are becoming a big burden.”
The sales price of homes priced at $2 million or more fell 1.6 percent to $1.55 million nationwide in the first quarter of the year, Redfin reports. This is the first annual decline in nearly three years.
Sales of luxury homes declined 16 percent year over year in the first quarter, the biggest drop in luxury home sales since 2010. At the same time, the number of luxury homes on the market shot up 14 percent.
In markets that have cooled, buyers will face fewer bidding wars, giving them time to shop around and figure out what they want; maybe even negotiate on price.
Last year at this time, 75 percent of sellers in San Francisco and San Jose had multiple offers, Redfin’s data shows. It was down to 22 percent in April. In the Seattle metro area, buyers faced a bidding war 72 percent of the time last April. Today, it’s only 15 percent.
In the first quarter of this year, 72 percent of homes sold below their original list price, according to a report by Knock, a website that helps people buy and sell houses. Knock predicts that the percentage will increase to 75 percent in the second quarter.
The current slowdown might not last very long in some previously frenzied markets. The latest report from the National Association of Realtors shows pending home sales rose in March, reversing course from February. The association’s Pending Home Sales Index, a forward-looking indicator based on contract signing, rose 3.8 percent in March. Sales activity in the West, which had been relatively stable for five months, also increased.
Some believe the affordability correction has already happened in places like Seattle, where inventory is up and prices have come down or leveled off. Combine that with a booming economy and lower mortgage rates — the average 30-year fixed rate loan is now 4.14 percent — and prices are headed back up again.
“With mortgage rates flat and inventory picking up, we expect more buyers to take advantage of easing housing market headwinds,” said Ralph McLaughlin, deputy chief economist at CoreLogic.
“It’s a seller’s market again and buyers need to be ready — or they’re not going to get a home, ” said Lennox Scott, chairman and CEO of Seattle-based John L. Scott Real Estate.