Given mortgage rates have plummeted and home prices aren't appreciating fast enough, the real estate industry has transformed into a buyers market, where inventory is flooding top metropolitan areas across the US, reported Redfin.
Home prices were slightly lower in March, falling .10% from a year ago, to a median of $295,100 across 85 metros Redfin monitors. Although this hardly reads as a decline, it’s the first y/y decrease since February 2012.
About 10.5% or nine of the 85 metros Redfin tracks saw y/y declines in their median price in March, including a 13% plunge in San Jose and a 1% decline in San Francisco. West Coast markets are under pressure, including Los Angeles, Orange County, and Seattle recorded the largest y/y declines in the number of homes sold while more affordable markets on the East Coast saw annual sale increases.
Redfin notes that housing market activity is shifting to less expensive regions, the slight decline in the median price last month reflects just that.
"Homebuyers have backed off in West Coast metros where home prices have risen far out of their budgets," said Redfin chief economist Daryl Fairweather. "The opposite is happening in more affordable metros where buyers are eager to buy now to take advantage of low mortgage rates. In California, where the tax burden is high, some people are finding they have to move out of state to afford to buy a home. As a result, home sales are down in metros throughout the state.”
Home sales increased 2% y/y in March, but there was a lot of variation among the 85 metro areas. Homes sold in 37 of the 85 metros recorded declines, while 24 metros saw double-digit increases in sales compared to last year.
The report showed most of the home sale declines were situated on the West Coast and some of the biggest increases were on the East Coast:
Demand in Orange County went from "good to horrible" in late 2018 Rick Palacios, director of research at John Burns Real Estate Consulting LLC, told Bloomberg. In 4Q18, sales of new homes on the coast were the weakest since the Great Recession, he said.
Across the 85 metros, cities that saw the weakest activity in home sales were listed at a steep premium versus the median price, indicating demand for luxury real estate has collapsed.
The number of homes for sale at the end of the month was up 3.6% from a year earlier in March. The number of homes newly listed for sale fell 2.8% from March 2018.
Redfin warns that 46 of the 85 metro areas were currently experiencing a flood of inventory in March on a y/y basis, with the largest gains coming from the West Coast: San Jose (+104.3%) and Seattle (+82.9%).
The report shows that housing markets across the US could be at a cycle turn. Let's hope this isn't the start of a multi-year housing slump that could leave many millennials holding the bag in West Coast cities.