Is the Market Suddenly Softening?

March 9, 2018

The housing market may not be as robust this spring as some originally predicted, and real estate professionals are pointing to the main culprits as rising mortgage rates, a new tax law, and growing affordability problems among first-time buyers.

The spring market will be the true judge of whether the housing market has hit a slowdown. About 40 percent of the year’s sales tend to occur from March through June, according to the National Association of REALTORS®.

“It’s still going to be a tight market, but we’re moving from an extremely tight market to one that has some wiggle room around the edges for buyers,” Daren Blomquist, senior vice president at ATTOM Data Solutions, a real estate research firm, told The Wall Street Journal.

NAR’s Chief Economist Lawrence Yun is forecasting home sales to be mostly flat this spring and for most of 2018 compared to a year ago. Yun points to ongoing inventory shortages and housing affordability concerns from rising home prices and mortgage rates.

NAR reported that existing-home sales in January posted their largest annual drop in three years. Also, pending home sales, based on contract activity, slowed 4.7 percent in January, also to the lowest level in more than three years. Median home prices, on the other hand, rose 5.8 percent compared to a year ago.

Housing analysts caution that a new tax bill may also prompt a slowdown in the top end of the housing market. The tax bill capped the mortgage interest deduction and state and local tax deductions, which are expected to mostly affect the higher end of the market. Read more about what the new tax law means for real estate

Meanwhile, mortgage rates continue to be on the rise since the start of the year. The 30-year fixed rate averaged 4.46 percent this week, its highest average since January 2014, Freddie Mac reports.

Source: “Spring Home Sales Could Be the Weakest in Years,” The Wall Street Journal (March 7, 2018) [Log-in required.]