What's Next in the Housing Market? There's a Difference between the $1M plus and Under Range

**If you're a homeowner in the $1M plus range, you will be happy to read the ending of this.**

The housing market has shifted for sometime now and it has been more apparent now since the start of 2018. This shift merely comes down to economics as I have explained the following on my real estate videos: the 10 year yield, fed funds rate, inflation and the yield curve. I highly recommend you understand these factors before reading further. If you'd like to understand these factors, go watch these quick videos here and here)

Buyers are having a hard time affording homes due to a lack of housing supply. When there is low supply and high demand, automatically the supply becomes more expensive which is the reason why home prices have continuously gone up. Much of the low supply comes down to rising building material costs, regulation, shortages of land and labor (CNBC source). 

Lawrence Yun, chief economist for the National Association of Realtors, said "The reason sales are falling off last year's pace is that multiple years of inadequate supply in markets with strong job growth have finally driven up home prices to a point where an increasing number of prospective buyers are unable to afford it." (CNBC source)

**The Federal Reserve expressed their concern on the weakness in the housing market at during recent FOMC meeting.**

Mortgage interest rates have also gone based on two main factors:

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1) The economy continues to grow- GDP growth, inflation, low unemployment etc. 

2) The Federal Reserve has been raising rates by tightening the money supply and the 10 year yield has risen which is tied to the growing stock market.

These higher mortgage interest rates and higher home prices have negatively affected buyers. However, this has affected buyers under the $1M range market more because wealthier home buyers do not yet see this as a drastic change to their wallet. According to Freddie Mac, the average interest rate on a 30-year fixed-rate mortgage in July 2018 was 4.53%, up from 4.03% in January 2018 and 3.97% in July 2017 (WSJ source). As of right now (August 30, 2018), a 30 year fixed mortgage rate is approximately 4.6%. 

Based on all of this info as shown above and the slow down in pending & new home sales, the numbers are showing that the housing market is cooling.

"Signed contracts to buy existing homes fell 0.7 percent in July compared with June, according to the National Association of Realtors' pending home sales index. The gauge was down 2.3 percent compared with July 2017. That is the seventh straight month of annual declines. Pending home sales are an indicator of future closed sales. In the West, sales fell 0.9 percent monthly and 5.8 percent annually.

Buyers have been struggling to find affordable homes this year, as the supply of homes for sale has fallen annually for most of the year. It was finally flat in July, but the market needs a significant surge in new listings in order to cool prices and boost sales. Sales are weakest in the West because that is where affordability is worst. Homebuilders are most active in both the South and West, but mostly not at the lower end of the market, where demand is strongest." - Diana Olick (twitter handle)

On a lighter note for residents in Southern CA, there are some neighborhoods where home prices are slightly coming down. All of this depends on the neighborhood so make certain to send me an email, call or text to find out if the neighborhood you are inquiring on falls in this category. "It's evident in recent months that many of the most overheated real estate markets — especially those out West — are starting to see a slight decline in home sales and slower price growth," Lawrence Yun. 


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Sales of new U.S. single-family homes unexpectedly fell in July to a nine-month low in a sign the housing market was cooling and could give less support to the overall economy.

The Commerce Department said on Thursday new home sales decreased 1.7 percent to a seasonally adjusted annual rate of 627,000 units last month, the lowest level since October 2017. June's sales pace was revised up to 638,000 units from the previously reported 631,000 units.

Economists polled by Reuters had forecast new home sales, which account for about 10 percent of housing market sales, rising to a pace of 645,000 units in July.

New home sales are drawn from permits and tend to be volatile on a month-to-month basis. They increased 12.8 percent from a year ago. Housing market data has weakened in recent months, with home resales declining in July for a fourth straight month."- Reuters & CNBC source

What you may find interesting is that new home sales rose 10.9 percent in the West (CNBC source). Why you may ask? This is due to new development occurring in the higher end of the market (the $1M plus range). I have seen this occur throughout my real estate area in the Hollywood Hills. Almost everywhere from the Bird Streets to the Hollywood Hills East I see construction which has made my driving time double!

Now that I have covered pending and new home sales, you may wonder about existing home sales which means homes that have been built for sometime now. This part of the market has been slowing because people living in these homes do not want to move. "With prices at new all-time highs and the economy booming, this would normally be a prime opportunity for current owners to sell, adding to inventory and generating more activity in the housing market. Instead, many are staying put, often choosing to renovate rather than give up their historically low mortgage rates and pay the significantly higher prices for their next home." - Laura Kusisto (twitter handle) and Paul Kiernan (twitter handle)

Moreover, to my clients in the $1M plus range you may find the following news a relief! "Sales of homes at the low end of the price spectrum—priced at less than $100,000—led the decline, falling nearly 11% from July 2017. Sales of homes priced $1 million or more, by comparison, rose 16%. Buyers at lower price points appear to be struggling more as home-price gains outpace wage increases." - Laura Kusisto and Paul Kiernan

Therefore, to my clients that fall in that price range, do yourself the favor by selling RIGHT NOW if you have considered selling.

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