By Neil Pierson
The shift to a buyer’s market is fraught with complexities
Neil Pierson is editor of Scotsman Guide Commercial
Edition. Reach him at email@example.com or
market for a longer period of time and maybe even
some price drops from that initial listing price.”
Lawrence Yun, NAR’s chief economist, says home-
price growth has “greatly outpaced” wage growth
over the past several years. The annual inflation rate of
2.9 percent this past July was higher than annual
wage growth of 2.7 percent during the same period,
according to the U.S. Department of Labor, so prospective homebuyers may be less able to save for a downpayment or make monthly mortgage payments.
Nominal wages, or earnings that aren’t adjusted for
inflation, haven’t grown quickly enough in the post-recession era, according to the Economic Policy Institute, a nonpartisan research group. Wage growth of
3. 5 percent annually over that period would be required
to match inflation and productivity growth. Assuming
that pace of wage growth, the institute calculated
that, as of this past August, average hourly earnings for
private-sector employees should have been $30.57.
The actual figure was $27.16 — 11 percent less.
Meanwhile, home prices continued to accelerate
during the past second quarter in about one-third of
the 122 metro areas tracked by Attom Data Solutions.
Nationally, the median home price of $255,000 as of
second-quarter 2018 was 6 percent higher than the
pre-recession high that occurred in third-quarter 2005.
“Right now, we are in the most unaffordable condi-
tion in a decade,” Yun said. “Back during the bubble
years, 10 years ago, it was just too much demand from
easy lending. Today, we have sounder mortgage-
underwriting standards than before, but the price
growth is really coming from a housing shortage — a
lack of inventory.”
Although there are not enough homes to meet
demand nationwide, a Zillow report from this past July
showed housing inventory reached the slowest pace
of decline since March 2017, a sign that homebuilders
have made “slow and inconsistent” progress in creat-
ing new supply, Terrazas says.
Home sellers have been in an advantageous position for some time as home prices have soared across the country and the supply of for-sale homes hasn’t kept pace
with buyer demand.
According to the National Association of Realtors
(NAR), the nationwide inventory of existing homes for
sale bottomed out at a 3.2-month supply in December 2017. At the end of last year, the median sales
price of an existing home in the U.S. was $247,200, a
year-over-year jump of 5. 4 percent.
There are signs, however, that homes are starting
to become more available and more affordable for
buyers. As of this past August, NAR reported, for-sale
inventory increased 2.7 percent year over year and
represented 4. 3 months of supply. And although the
median sales price rose on an annual basis for the
78th consecutive month, the year-over-year gain had
slowed to 4. 6 percent.
Mortgage originators looking for a shift to a buyer’s
market to boost their purchase-loan business may
need to continue to exercise patience, however.
According to a Zillow survey from this past August,
43 percent of the housing-market experts who responded don’t expect conditions to “shift decidedly in
favor” of homebuyers until 2020. Another 33 percent
predict this sea change won’t arrive until 2021 or later.
Survey respondents expect home-price growth will
continue to decelerate for the foreseeable future.
Annualized price growth could fall to 4.2 percent by
the end of 2019 and to 3 percent or less from 2020 to
2022, Zillow reported.
“Almost two-thirds of the largest housing markets
have seen a slowdown in appreciation over the past
year,” says Aaron Terrazas, Zillow’s senior economist.
“The long-term average of appreciation is 3. 7 percent
Mike Fratantoni, chief economist for the Mortgage
Bankers Association, also says he expects average
price growth to level off within the range of 3 per-
cent to 4 percent in the next year. In many markets, he
says, there is anecdotal evidence that for-sale homes
with multiple-bid situations are increasingly rare, and
the associated offers tend to meet asking prices, rather
than exceed them.
“Typically, if a seller sees their neighbor down the
street generating a bidding war, their expectations
when they set that list price are going to be pretty
aggressive, too,” Fratantoni says. “But we’re in a period
now where, because the level of prices has gotten
so high, that it has become unaffordable for a lot of
potential buyers. You may see … homes sit on the
A shift toward a buyer’s market may hinge on home-
ownership costs that are less expensive than rental-
housing costs. Buying a median-priced home is more
affordable than renting a three-bedroom property
in 54 percent of U.S. markets, according to an Attom
Data Solution report from this past January. In high-
cost markets such as Los Angeles, San Francisco,
Seattle, Miami, New York and Boston, however, less
than 10 percent of renters can afford monthly mort-
gage payments on a median-priced home, accord-
ing to a 2017 annual report from the Joint Center for
Housing Studies at Harvard University.
“If you have the money for a downpayment, owning
a home is less of a financial burden in terms of monthly
housing costs than renting is in most markets across
the country,” Terrazas says. “But the financial calculus
of owning a home versus renting is only a part of that
decision. … Those bigger life events (such as marriage
and having children) often take precedence when
deciding where to live and whether to buy or rent.”
Yun believes that “middle America” — the areas
between the Rocky Mountains and the Appalachian
Mountains — currently represents a strong case
“that owning would be a better bargain than
renting.” About half of the respondents in Zillow’s
home-price expectations survey believe the Midwest
will become a clear-cut buyer’s market by the end of
2019, a year earlier than other areas of the country.
And Fratantoni cites the growing trend of migration
from California to interior markets like Denver and
Salt Lake City.
“To the extent there are growing opportunities in
up-and-coming sectors, particularly in the tech space,
people are going to move for jobs, for quality of life
and, in some cases, more affordable costs of living,”
Fratantoni says. “I do expect it’s going to continue.” n
“Right now, we are in
the most unaffordable
condition in a
Chief economist, National
Association of Realtors