The young couple was fed up with Seattle’s home bidding wars. They were only in their late 20s, but had already lost two battles for homes and were ready to renew their apartment. Then, in May, their real estate broker called.
Suddenly, sellers were getting jumpy, even here in the hottest of markets, the agent from Redfin told the couple. Homes that should have vanished in days were sitting on the market for weeks. There was a three-bedroom fixer-upper just north of the city going for $550,000, down from more than $600,000. They made the leap in early June and closed by the end of the month, for list price.
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The US housing market — particularly in cutthroat areas like Seattle and Silicon Valley — appears to be headed for the broadest slowdown in years. Buyers are getting squeezed by rising mortgage rates and prices that are climbing about twice as fast as incomes, and there’s only so far they can stretch.
“This could be the very beginning of a turning point,” said Robert Shiller, a Nobel Prize-winning economist who is famed for warning of the dot-com and housing bubbles, in an interview. He stressed that he isn’t ready to make that call yet.
A slew of figures released over the past three days gives ample evidence of at least a cooling.
Existing-home sales dropped in June for a third straight month. Purchases of new homes are at their slowest pace in eight months. Inventory, which plunged for years, has begun to grow again as buyers move to the sidelines, sapping the fuel for surging home values. Prices for existing homes climbed 6.4 percent in May, the smallest year-over-year gain since early 2017, and have gained the least over three months since 2012, according to the Federal Housing Finance Agency.
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“Home prices are plateauing,” said Ed Stansfield, chief property economist at Capital Economics Ltd. in London. “People are saying: Let’s just bide our time, there’s no great rush. If we wait six or nine months we’re not going to lose out on getting a foot on the ladder.”
Stansfield projects a 5 percent gain this year and a 3 percent increase in 2019. That compares with 10.7 percent in 2005, shortly before the crash.
Some of the most expensive markets, where sales are falling under the weight of prices, are now seeing substantial increases in available properties, according to Redfin Corp. In San Jose, Calif., inventory was up 12 percent in June from a year earlier. It rose 24 percent in Seattle and 32 percent in Portland, Ore.
“Inventory has increased quite a bit,” Shoshana Godwin, the Seattle Redfin agent, said. “We’re seeing less competition.”
Dustin Miller, an agent with Windermere Realty Trust in Portland, said he’s trying to manage sellers’ expectations, something he hasn’t had to do since the end of the last housing boom. One customer, a baby boomer moving to a new home across the state, expected to have buyers fighting over her house. She got one bid, below her asking price.
“Buyers want to shop and take some time, as opposed to having to rush and throw offers in,” Miller said. “It’s the market correcting itself. At some point, you hit a peak of momentum, and then things level off.”
Still, market watchers note housing has strong support from a healthy labor market and steady economic growth, which indicates a stabilizing trend for home prices rather than anything close to the experience of the crisis, when property values plunged.
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Homeownership still remains out of reach for many Americans, especially for first-time and younger buyers. For existing homes, the median price climbed in June to a record $276,900, according to the National Association of Realtors.
Santsfield said “no one knows how far and how fast” borrowing costs may rise as the Federal Reserve raises interest rates; lenders and borrowers alike are less likely to let credit spiral out of control than in 2005 and 2006. And with financing tighter and wage gains in check, “there’s not much scope for prices to continue to increase sustainably” at recent rates, he said.