Home prices are still rising in America, but real housing wealth contracted a sixth month towards the end of last year, according to data released on Tuesday.
The annual gain on the S&P Cotality Case-Shiller 20-city gauge was a subdued 1.4% in November, the update showed. (Remember: This data comes on a two-month delay.)
That was marginally quicker than October’s annual gain and on an unrounded basis, it was the fastest since August. But as Nicholas Godec, S&P Dow Jones’s head of FICC, remarked, the results “confirm that the housing market has entered a period of tepid growth.” Consider that annual price growth was running nearly 4% in November of 2024.
Although the marked downshift in the pace of price growth’s small comfort in the context of buyers for whom the downpayment hurdle’s simply insurmountable, the fact that home values are moving lower in inflation-adjusted terms at least nods to a dynamic which, over time, may improve affordability.
In the editorial accompanying the release, Godec said mortgage rates are still too high to move the needle. Anything with a six-handle “cast[s] a long shadow over housing,” he wrote, adding that “elevated financing costs continue to cap price growth [and] inflation has erased most nominal gains.”
Meanwhile, the latest cancellations update from Redfin showed more than 16% of purchase agreements fell through last month.
As the figure shows, that’s the highest in at least eight years — higher, even, than March of 2020, at the onset of the pandemic.
Some of that’s likely attributable to the dearth of buyers. Recall that on the surface at least, this is a buyer’s market, which means in the event an inspection turns up — I don’t know — too many gaps in the crown molding seams, buyers can demand a $20,000 paint job under threat of walking. Sellers, still reluctant to accept their demonstrable lack of leverage, could balk, and there goes the deal.
But as Redfin gently noted, “Buyers frequently back out of deals using the inspection contingency even if their primary reason for canceling is that they realized the mortgage payments are too expensive.”
Usually when rates are high Fannie/Freddie buy ARMs but that hasn’t happened once rates moved up to 7. A 5/7 year ARM in the lower 5s would help.
I have heard from several real estate agents, that in part because of K-shaped economy, many folks simply aren’t keeping-up their homes as well as they used to. Because affordability is such an issue, much of the activity in real estate is on the lower cost end of the spectrum. Home inspections now frequently uncover real issues in these homes that need to be addressed. Issues, such as: broken and outdated HVAC systems, septic problems, mold, roofing issues, and the like. They even have a term for this. It’s called: “living off the depreciation of your home.” It has been an issue ever since COVID ended, and home inspections become more common once again. That could partly explain the trend in cancellations.
“. . . and home inspections BECAME more common once again.” Sorry.
H-Man, as people like me (a baby boomer) move on to the next level, our children/heirs/money grabbers will liquidate our homes at any price in order to convert an illiquid asset into cash and move for the exits. I don’t see a lot of homeowners in the next generation.
Inspection period is also when the prospective buyer gets clarity on home insurance, HOA and property taxes. These did not used to be budget busters but today they can be. Especially some status such as Florida, Texas, California and other mountain west areas.