Price Cuts On the Rise, But New Construction Picked Up in 2018
Most indicators point to a slowing of the housing market, although sales of newly built homes rose in late 2018.
In another sign of a slowing housing market, the share of homes sold above asking price declined each month in the second half of 2018, according to research by Zillow. This follows similar findings from realtor.com's January housing report indicating that 15 percent of U.S. listings had price cuts last month.
Zillow found that December had the biggest month-over-month drop, when 19 percent of home sales in the U.S. went for above asking in December, compared to 21 percent in November; it was the largest month-over-month drop since at least 2012. The peak was 24 percent in May. While lower than the highs of this spring, the level remains above the 17-percent range from 2014.
This downward trend in December was widespread: Eight of the 10 largest markets in the U.S. experienced a drop from November levels – Philadelphia and Washington, D.C., were the exceptions. Among the largest 35 markets, 27 saw a downtick in the share of homes that sold above list. The largest drop was in Indianapolis, where homes selling above list fell nearly 13 percentage points, followed by San Francisco, down 5.4 percentage points. Notably, San Francisco still saw the second-highest share of homes sell above list price in December (42.6 percent) among top-35 markets, exceeded only by San Antonio (44.3 percent).
An 'Inflection Point' in Housing Market
Despite the slowdown during the back half of the year, the annual share of homes sold above list price still trended upward for the fourth consecutive year, though the pace is slowing. Nationally, 23.5 percent of homes sold above list price in 2018 compared to 22.7 percent in 2017. The median amount above asking that sellers realized fell from $7,000 to $6,830.
"Last year marked an inflection point in the housing market. The first half of 2018 looked a lot like the previous three years with sellers firmly in control of the market and buyers outbidding each other for scarce inventory, pushing up prices," said Zillow® senior economist Aaron Terrazas. "But something shifted mid-summer. Sellers sitting on the sidelines joined in, increasing inventory.
The balance of power began to swing marginally back toward buyers – particularly in higher-priced communities – during the second half of the year, an unfamiliar chill after several years of frenzied activity. With mortgage rates now back down, early data from the first month of 2019 suggest that it is still premature to call it a buyer's market. But more than any time in recent memory, it is important for sellers to be thoughtful in their listing strategy. Buyers are out there, but they're no longer fighting each other tooth and nail to get in the door."
Newly Built Homes
While sales of newly built, single-family homes rose to a seasonally adjusted annual rate of 657,000 units in November--the highest sales pace since March 2018--on a year-to-date basis, sales are down 7.7 percent from this time in 2017. This is according to the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.
"The sales increase was fueled by a notable uptick in homes sold at the affordable end of the market," said Randy Noel, chairman of the National Association of Home Builders (NAHB) and a custom home builder from LaPlace, La. "There is clearly a demand for new home homes even as builders continue to grapple with supply-side challenges, including shortages of lots and labor and higher building material costs stemming from tariffs."
"Solid job growth and growing household formations should support future demand for housing even as builders continue to address mounting affordability woes," said NAHB Chief Economist Robert Dietz. "Builders are doing all they can to hold the line on costs to meet this demand, particularly at the entry-level market."
A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the November reading of 657,000 units is the number of homes that would sell if this pace continued for the next 12 months.
The inventory of new homes for sale rose to 330,000 in November. The median sales price fell to $302,400, as the market has shifted to lower-cost houses.
Regionally, on a monthly basis, new home sales jumped 100 percent in the Northeast, 30.5 percent in the Midwest and 20.6 percent in the South. Sales fell 5.9 percent in the West.