The housing market showed signs of cooling in the first quarter as the supply of homes for sale expanded and lofty prices put a damper on demand in recent months.
The median price of an existing U.S. home was $191,600 in this year’s first quarter, up 8.6% from a year earlier, according to the National Association of Realtors’ examination of multiple-listing service data in 170 metro areas. That compares to a 10.1% year-over-year gain in the fourth quarter and 12.5% in the third.
A key driver of the price slowdown was an increase in the supply of existing homes listed for sale in the first quarter, which expanded by 3.1% from a year earlier to 2 million, the Realtors group said Monday. More sellers have listed their homes as rising prices in the past year have provided them enough positive equity to do so.
Many economists and housing-market observers forecast that home-price increases will abate this year after posting strong gains since late 2012. That’s due partly to more listings of homes for sale, which increases competition for buyers. It’s also due to a decline in the number of foreclosed and otherwise distressed homes on the market, which often sell for low prices.
Thomas Lawler, an independent housing economist based in Leesburg, Va., who spent 22 years at Fannie Mae, predicts prices gains will cool to low-single-digit advances by the end of this year.
“One of the reasons that demand appears to be slowing is that the pace of previous home-price increases has negatively affected affordability,” Mr. Lawler said. “And some of the previous year-over-year gains were from depressed levels when there was a lot of distressed inventory on the market.”
Economists have differing opinions on the extent to which price increases have made homes less affordable for buyers. Interest rates are higher, with the rate for a 30-year fixed-rate mortgage now at 4.21%, up from 3.42% a year earlier, according to Freddie Mac. Mortgage-insurance fees also have increased.
However, the Realtors association argued Monday that homes remain affordable, noting that a buyer purchasing a home at the first-quarter median price with a 5% down payment would need an income of $44,200 to land a mortgage. With a 20% down payment, the necessary income is $37,200, the group said.
Economists who find homes still affordable note that continued big price gains were threatening that. “It’s probably a good thing that house-price gains will slow,” said Paul Diggle, a property economist specializing in U.S. housing for Capital Economics Ltd., based in London. “If they do continue at double-digit rates, then in another 12 to 18 months housing will start to look overvalued.”
Mr. Diggle forecasts that, by the end of this year, gains in existing home prices will slow to 4%.
Though it was gathered from multiple-listing services, the Realtor association data comes with a caveat: It doesn’t account for the mix of homes sold in each quarter. In other words, the price gains tallied in the Realtor data might be partly due to sales of more large, high-priced homes now than a year ago. Other data providers factor out such “mix shifts” by focusing on the prices of a limited pool of the same homes through the years. Even so, many of those indicators also have shown a slowdown in price gains of late.
The Realtors association found that, in this year’s first quarter, 74% of the 170 metro areas it studied showed gains from a year ago in prices at closing. That’s nearly the same as in the fourth quarter, when 73% of metro areas posted gains. But it is down from last year’s first quarter, when 89% of metro areas recorded gains.
Lawrence Yun, the Realtors association’s chief economist, cautioned Monday that supply remains constrained in some markets, and that continues to push prices up. “Limited inventory is creating unsustainable and unhealthy price growth in some large markets, notably on the West Coast,” Mr. Yun said in a statement outlining the first-quarter data.
Senior Director, Coldwell Banker New Homes Division
With over 200 condominium, townhome and loft projects successfully marketed
“Fewer properties for sale with such remarkably low interest rates make it a great time to sell but a more difficult time to buy”