The summer buying season has come to a close, and this year it was anything but boring. To be sure, there were ups and downs, particularly regarding prices and inventory, but many buyers managed to find their dream home, and many sellers were able to get a good value for their own.
In this post, we take a look back at the 2017 season highlights and look ahead to the summer buying season already shaping up for 2018.
Season Starts Off “With a Bang”
Almost a year ago, there was much optimism for home buying in 2017. Inman reported on a Realtor.com report that predicted we’d see a large increase in first-time buyers and high demand for good homes in the suburbs. The bulk of the report’s so-called “active home shoppers” were also said to be targeting spring and summer for making their purchase.
Initially, the season started off “with a bang,” noted Svenja Gudell, Zillow’s chief economist, with March home sales that were reported above expectations. An early spring played into a strong start to the homebuying season, but still some, like Cheryl Young, Trulia’s senior economist, were already noting “headwinds” caused by high prices and low inventory.
Buyers Face Increasing “Headwinds”
A joint report from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development showed buyers wouldn’t be getting a break this season from these headwinds caused by low inventory. Single-family housing starts had fallen 6.2 percent between February and March. Permits for single-family construction also dipped 1.1 percent. Housing starts declined again in April, leading National Association of Realtors (NAR) chief economist Lawrence Yun to dub the issue a “bottleneck” to economic recovery.
Nonetheless, sellers were still selling and buyers who were able to were still buying. In June, Ellie Mae reported that May purchase originations were the highest since Ellie Mae began tracking data via their Origination Insight Report in 2011. Originations rose three percent from April, and constituted 68 percent of all mortgage loan origination volume.
Price Acceleration Leads to “Frenzy”
In June, Frank Nothaft, chief economist for CoreLogic, called the buying season in some markets a “bidding frenzy.” Home prices were up 6.9 percent year over year, and up three percent monthly from April.
The stiff competition among buyers, coupled with stubbornly low supply, had pushed the nation’s median sales price for existing homes to an all-time high of $252,800 for May, according to NAR. Yet, NAR reported another record was set for prices in August, with the national median existing single-family home price climbing in the second quarter to $255,600. Home prices were reportedly up in 87 percent of measured markets in the second quarter of 2017.
While the new records were great news for homesellers and the homebuyers who found their dream home, the housing supply issues continued. Economists told HousingWire in June that the shortage could “turn into a housing emergency” if supply didn’t improve soon. High prices even outweighed the benefit to buyers of a return to interest rates below 4.0 percent that began in June.
Supply, Prices Leave Some “on the Sidelines”
In July, HousingWire reported many would-be buyers were “on the sidelines,” priced out by the hot markets, stiff competition, and the low supply of available homes. Existing-home sales even fell in June, by 1.8 percent to a seasonally adjusted annual rate of 5.52 million, as inventory dropped a further 0.5 percent from May. Existing-home sales continued to decline for the rest of the season, to 5.44 million in July and then 5.35 million in August.
New-home sales also decreased to a new low in August, for a seasonally adjusted annual rate of 560,000 units. It was said to be a new low for 2017, and contrary to expectations of an increase.
Nevertheless, home prices have continued to pick up speed as the summer buying season comes to a close, even as inventory woes have depressed late-summer sales. The latest Case-Shiller National Home Price Index showed prices were up 5.9 percent annually. The index’s 10-City and 20-City composites were also up year over year.
Initial 2018 Forecast Optimistic
The summer buying season for 2018 is still a long way off, but that doesn’t mean the experts aren’t sizing things up. Earlier this year, NAR forecast new home sales to keep ticking up, from 560,000 units in 2016 to 620,000 units in 2017, and 670,000 in 2018. Existing home sales were also trending up, from 5.45 million units last year, to 5.6 million forecast for this year, and 5.8 million home sales in 2018. However, that was all before two major Atlantic hurricanes.
Hurricanes Prompt 2018 Forecast Moderation
In the aftermath of Hurricane Irma, Lennar Corp, the second-largest home builder in the nation, told the South Florida Sun-Sentinel it was expecting 700 fourth-quarter new-home deliveries to be pushed back to 2018. NAR also reported that August pending-home sales were down 2.6 percent. In part, that was due to closing delays for pipeline homes in Florida and Texas.
The result of these late-year events has meant that NAR is moderating its forecast for 2017 for existing-home sales, now forecasting 5.44 million existing-home sales by the end of the year, down slightly from last year.
Price growth is expected to now top six percent, not five percent for the year. Will prices still moderate for 2018 to a predicted level of 3.5 percent? NAR hasn’t weighed in. Similarly, NAR’s May forecast of 4.3 and 5.0 percent interest rates for 2017 and 2018, respectively, appears unlikely. Though interest rates started the year strong, the 30-year fixed-rate mortgage for the first nine months of 2017 has averaged below 4.01 percent, due to rates falling back below 4.0 percent over the summer.
At almost seven months away from the start of the next buying season, there’s a lot that could still change. The pace of interest rates and price appreciation remains a bit of a wild card, although, with a growing economy, high demand, and another anticipated Fed interest rate hike, both are still expected to trend up.
The success of the 2018 buying season will probably be tied even more closely to the housing inventory situation than was the 2017 season. While the problem of a lack of affordable entry-level homes is well known, experts don’t seem to have a handle on how to address that problem for next season. A lot rides on fixing this “bottleneck” issue before it develops into a more intractable problem.