Archive for August 6th, 2013

Asking Prices Cooled in July.

Tuesday, August 6th, 2013

The torrid increase in housing prices is showing signs of cooling off, as factors including rising interest rates, waning investor interest and a growing number of homes for sale conspire to the keep recent pace housing price gains from accelerating further.

Since homes are for the most part sold in a slow and individual manner, the earliest indications of demand are asking prices. According to TruliaTRLA -3.20%, asking prices fell 0.3% in July, the first month-over-month decline since November of last year. One month’s data does not a trend make, but the Trulia report also showed that a less bumpy data series—the year-over-year increase in quarterly asking prices—increased at a slower pace the second quarter than they did in the first.

Why does this matter? Because asking prices lead sales prices by approximately two or more months, Trulia’s report reveals “trends before other price indexes do,” wrote Jed Kolko, Trulia’s chief economist, in the report.

Trulia is not the only data outfit to report a slowdown in proximal housing indicators. Redfin, the online real estate brokerage, reported that the number of people taking home tours fell slightly in June.

None of this means home prices are set to decline, and it sure doesn’t mean there’s some massive bubble in home prices that is set to pop. In most places in the U.S., home prices remain affordable, with owning costing about as much renting, which encourages people to buy. Also, home buyer traffic usually slows down between spring and summer.

But the decline in asking prices could mean the beginning of a slowdown in price growth, which should surprise no one and could be interpreted as a sign of strength, as the factors driving the slowdown foreshadow a return to normalcy for the housing market.

For starters, home prices have gone up about 12% over the past year and many of the hardest hit markets in the Southwest and West have seen gains as much as double that. This has led to fewer underwater borrowers and prompted others to sell their homes, which has eased the inventory crunch that was a huge factor behind the past year’s price gains.

Finally, interest rates are up and investors—though still a large part of the market—have slowed their purchases, removing and important source of demand.

Trulia’s report shows that the biggest asking price slowdowns have been in markets that have grown the most expensive—and thus most sensitive to rising rates. Las Vegas, which has seen a surge in prices and investor interest, was No. 1. Oakland and San Francisco were second and third, respectively. Both Bay Area cities have a perpetual shortage in inventory and have seen a surge in buyers from the white hot technology industry.

For more related topics, visit Real Estate Investment 101.