The house price crash that could wreck your finances – and it's not in Britain

 By: Nicole Friedman

U.S. Home Sales Fall for 12th Straight Month

Sales of previously owned homes drop 0.7% in January to slowest level since October 2010

The U.S. housing market weakened in January for the 12th straight month as continued high mortgage rates kept buyers on the sidelines.

Sales of previously owned homes, which make up most of the housing market, fell 0.7% in January from the prior month to a seasonally adjusted annual rate of 4 million, the slowest since October 2010, the National Association of Realtors said Tuesday. January sales fell 36.9% from a year earlier.

January’s decline marked the longest streak of back-to-back monthly declines on record in figures going back to 1999, NAR said.

Existing-home sales dropped last year to the lowest level since 2014 after a surge in mortgage rates and record-high home prices raised the cost of many home purchases by hundreds of dollars a month. The drop in affordability, along with general economic uncertainty, pushed buyers out of the market.

Surprisingly strong inflation, jobs and retail spending figures in recent weeks have fueled expectations that the Federal Reserve could raise interest rates more than investors anticipated. The Fed has aggressively raised its benchmark federal-funds rate to cool the economy and bring down high inflation, hitting the rate-sensitive housing market particularly hard.

The average rate on a 30-year fixed mortgage rose to 6.32% last week, the biggest one-week increase in four months.

So far this year, buyers have been sensitive to changes in mortgage rates, real-estate agents say. Some of the sidelined buyers started to shop again in January and February as mortgage rates ticked down from last year’s recent highs and sellers were more willing to negotiate on price and give other concessions.

“I think the worst is behind us, [but] it really all depends on mortgage rates,” said Selma Hepp, chief economist at CoreLogic. “As soon as mortgage rates started coming down, I think people felt more comfortable.”

The national median existing-home price rose 1.3% in January from a year earlier to $359,000, NAR said, the smallest annual price gain since February 2012. Prices fell month-over-month for the seventh straight month after reaching a record high of $413,800 in June.

Economists surveyed by The Wall Street Journal had estimated that sales of previously owned homes rose 1.2% in January from the prior month.

Homes typically go under contract a month or two before the contract closes, so the January sales data largely reflect purchase decisions made in December and November.

Home-shopping activity increased in January and early February, real-estate agents said. Real-estate brokerage Redfin Corp.’s seasonally adjusted measure of home-buying demand, which tracks buyer inquiries, rose in the week ended Feb. 5 to the highest level since September before declining 1% the following week.

“A lot of people that gave up on the housing market in maybe spring and summer of last year are now like, ‘OK, I feel like I can breathe and get in again,’” said Wendy Dickinson of Coldwell Banker Realty in Charlotte, N.C. “People are understanding that the rates are not going to dip back down to 2.5%.”

Rob and Crystal Lucha started house hunting in the Austin, Texas, area in January after moving there last year for work.

“After sitting on the sidelines for a while, intuitively it felt like this could be a good time to buy,” Mr. Lucha said. “Homes were sitting on the market for longer.”

The couple had an offer accepted this month on a three-bedroom home in Leander, Texas, for $375,000, about 3.8% below the listing price, he said.

The higher interest rates have changed what many buyers can afford, even with prices falling from their springtime peaks.

Late last year, “so many households had clearly hit an affordability ceiling, where even if they wanted to move forward with a home purchase it was just not possible with rates at 7%,” said Danielle Hale, chief economist at Realtor.com. “It’s more of an open question, with rates closer to 6%.”

News Corp, owner of The Wall Street Journal, also operates Realtor.com under license from NAR.

The inventory of homes for sale remains well below normal for this time of year, which could keep home prices in some regions from sliding further, economists and real-estate agents said.

Many homeowners have rates on their mortgages below 4%, and they are unwilling to give up their current rate for a higher rate on a new home. With prospective sellers sitting on the sidelines, economists expect the inventory of homes for sale to remain lower than normal this year.

Nationally, there were 980,000 homes for sale or under contract at the end of January, up 2.1% from December and up 15.3% from January 2022, NAR said. At the current sales pace, there was a 2.9-month supply of homes on the market at the end of January.

The typical home sold in January was on the market for 33 days, up from 26 days from the prior month, NAR said.

The share of first-time buyers in the market was 31% in January, up from 27% a year earlier. About 29% of January existing-home sales were purchased in cash, up from 27% in the same month a year ago, NAR said.

Existing-home sales fell the most month-over-month in the Midwest, down 5%, and in the Northeast, down 3.8%. Sales rose from the prior month in the South and the West.

Some large, publicly traded home builders reported higher demand in January in recent earnings calls.

A measure of U.S. home-builder confidence rose in February to the highest level since September, the National Association of Home Builders said last week.

Housing starts, a measure of U.S. home-building, fell 4.5% in January from December, the Commerce Department said last week. Residential permits, which can be a bellwether for future home construction, rose 0.1%.

For Te Rest of The Story: U.S. Home Sales Fall for 12th Straight Month - WSJ

Map: Here's where home prices are dropping the most... 

Homebuyers are finally gaining leverage in the housing market, but where they can get the best discounts on home prices varies from metro to metro.

Some of the most popular pandemic boomtowns such as Phoenix and Seattle, plus perennially popular West Coast cities like San Jose and San Francisco, posted home price declines of more than 10% from their 2022 peaks, according to December data from mortgage technology and data provider Black Knight Inc. That outpaced the average national decline of 5.3%, off their June 2022 peaks.

Based on this study, home prices in Denver have dropped 6.9%

Overvalued markets will see sharpest declines

After mortgage rates surged to nearly 7% last year, home price growth began to slump across the country. As of December 2022, home prices had registered their sixth consecutive monthly decline – and Black Knight predicts those decreases will likely extend through 2023.

 Approximately 14 of the 50 largest markets are already showing signs of a sharp cooldown, the report found, with home prices falling by an average 6% or more from their 2022 peaks on a seasonally-adjusted basis. Among the metros evaluated, prices declined at a sharper rate in the West.

 San Francisco took the lead, with home prices there down 13% in December 2022 from their peak, Black Knight data showed. This was followed by San Jose ( down 12.7%), Seattle (down 11.3%), and Phoenix ( down 10.5%).

Still, home prices remain elevated for many homebuyers. For instance, the median home listing price in San Francisco was $1.3 million at year-end, according to Realtor.com, still up 3.7% year over year. However, the average home sold at $1.25 million, or 3.8% off the median listing price.

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Map: Here's where home prices are dropping the most (yahoo.com)

Feb. 7, 2023 5:30 am ET

Home-Buying Companies Stuck With Hundreds of Houses as Demand Slows

Ribbon Home Inc. had a fast-growing business during the housing boom. The New York City-based startup purchased homes with cash on behalf of buyers. Then it sold the homes to the buyers at the same price, plus a fee, once the buyers got a mortgage.

This approach made their clients’ offers more appealing, since sellers often prefer all-cash transactions that can close quickly and are considered more reliable. Ribbon has been active in hot markets such as Atlanta and Charlotte.

But last year as mortgage rates surged, some Ribbon customers backed out of their purchases or needed more time to get financing. That left the company owning nearly 400 homes, according to property records analyzed by research firm Attom Data Solutions and confirmed by the company.

Ribbon is one of a handful of young companies known as power buyers. These firms created a niche business around helping home buyers gain an edge during the hypercompetitive housing boom. Now that the market has cooled, some of these companies are stuck with hundreds of homes they acquired on behalf of clients.

Orchard Technologies Inc., another power buyer that has been active in places such as Denver and Dallas, helps customers buy a new home and move before selling their previous home. If clients can’t sell their homes after four months, Orchard agrees to buy them.

The company now owns about 200 homes its customers were unable to sell, said its Chief Executive Court Cunningham. Mr. Cunningham said Orchard has had to buy homes from customers three times as frequently over the past six months.

Some executives said they don’t expect every power buyer to survive. Many relied on venture capital to grow during the height of the housing market, but they are unlikely to raise as much money now. Between January and late November 2022, venture investment in proptech companies decreased 21% compared with the same period the year prior, according to a report from Keefe, Bruyette and Woods Inc.

“People were doing all sorts of things to outbid or be the most competitive offer,” said Diane Vanna, a real-estate agent at Baird & Warner in Chicago, who in 2021 represented a buyer who won a bidding war against 36 other offers. “Now it’s really leveled off.”

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Home-Buying Companies Stuck With Hundreds of Houses as Demand Slows - WSJ

Falling mortgage rates are beginning to stir demand in the housing market.

The average 30-year home loan rate has come down by just about a full percentage point from a 20-year high above 7% in November, largely in response to signs that the Federal Reserve is nearly finished lifting rates. That has brought some new buyers into the market.

Mortgage applications are up by about a quarter since the end of last year. A measure of signed real-estate contracts rose in December after six months of declines. And the number of people contacting real-estate agents to start the buying process has rebounded from a November low, according to brokerage Redfin Corp.’s internal data.

Rates are still well above the 3% range from a year ago, but “the fact that they are a percent lower—no one is complaining about that,” said Michael Menatian, president of Sanborn Mortgage Corp. in West Hartford, Conn. “If anything, they are pleasantly happy.”

The housing market is a barometer of how the economy is responding to a loosening of financial conditions in recent weeks. Stocks and bonds have both rebounded strongly to start the year on the premise that inflation is coming down without putting the U.S. into a deep recession.

Yet the Fed has indicated that it is committed to keeping rates high until inflation is lower, and it is willing to risk a recession to do so. High rates alongside a recession could be a one-two punch for any rebound.

No matter what happens, it is likely to be a slow year for the housing market. Housing activity remains down sharply from a year ago, when the Fed began to lift its benchmark rates to curb inflation. That pushed up mortgage rates at record speed, forcing buyers and sellers out of the market. Home sales fell for most of the past year, quickly snuffing out a boom from the height of the pandemic.

The slowdown has pulled national prices down from their peaks last year, though the S&P CoreLogic Case-Shiller National Home Price Index is up 40% from three years ago. The decline, which stretched into its fifth month in November, is expected to continue, hitting once-hot markets such as Boise, Idaho, especially hard.

But Goldman Sachs Group Inc. economists said this past month they expect the worst of the downturn has passed and housing is poised to exert less of a drag on economic growth going forward.

Executives at D.R. Horton Inc., the largest U.S. home builder by volume, told analysts in January that they have seen heightened sales activity in the first few weeks of the year. Net sales, they said, are expected to increase significantly from the first quarter to the second, when the traditional spring selling season happens. Spring tends to bring out more buyers and sellers, particularly families looking to move before a new school year.

Real-estate agents say buyers have adjusted to the reality that higher mortgage rates will eat up more of their monthly housing costs.

“They are less focused on the specific rate than they are on identifying a window of where they are comfortable with their monthly spend,” said Steven Centrella, a Redfin real-estate agent in the Washington, D.C., area.

Heather Cruz, an assistant superintendent in a school district, started looking to buy a house with her boyfriend in Phoenix in the past few weeks. After touring about a half dozen homes, they made an offer that was accepted last week.

They decided to purchase knowing that rates might fall and they could refinance their current mortgage later on. “I’m thinking this isn’t a forever thing,” Ms. Cruz said.

Home builders have been offering incentives to sell their finished homes. Some buyers are signing up for mortgages with rates that are temporarily lowered for the first few years.

Jack and Cassie Halpin closed on their home in Glastonbury, Conn., last week and started tearing up carpet and getting ready to paint. They used two mortgages, one of them an adjustable-rate loan at 5.375% for the first 10 years and at a floating rate thereafter.

“We expected to be somewhere in the 7% range,” Mr. Halpin said.

Applications for purchase mortgages are up 15% since the end of last year, and refinances are up 50%, though both declined in the week that ended Jan. 27, according to an index tracked by the Mortgage Bankers Association, a trade group.

Refinances had fallen off a cliff last year and remain at very low levels. Millions of homeowners refinanced when rates were hovering around 3% or lower. Far fewer can save money at rates above 6%.

“My clients aren’t necessarily excited about the current mortgage pricing, so the refinance only makes sense if they are taking some cash out to consolidate debt or refinance out of a private loan with higher interest,” said Tom Jessop, a loan consultant at New American Funding in San Clemente, Calif.

Pending home sales—a leading indicator for the housing market—rose 2.5% in December, led by gains in the South and West, according to the National Association of Realtors, a trade group. Contracts signed in January in a few southern California counties are up for the first month since August, according to a report by Douglas Elliman and Miller Samuel.

According to mortgage data and technology provider Black Knight Inc., mortgage-rate locks jumped 64% between the first and the fourth weeks of January, the sharpest climb in at least five years.

Higher rates and still-elevated prices have combined to erode affordability. What’s more, fewer sellers are putting homes on the market, leading to a mad dash for the affordable ones.

Becky Skrypek, a teacher, got serious about buying in the St. Paul, Minn., area last fall when she started to see more listings come on the market. So far, she has found that the homes in her budget of about $300,000 often have high demand that leads to bidding wars.

“It’s just discouraging that they go so fast,” she said.

Nicole Friedman contributed to this article.

Write to Ben Eisen at [email protected]

Housing Market Shows Signs of Thawing - WSJ