By Laura Kusisto, Will Parker and Abigail Summerville
U.S. home sales slumped in June as home prices for major West
Coast cities declined for the first time since 2012, ending the
spring selling season with a thud.
Real-estate agents said lower asking prices could eventually
attract more buyers, but home values in the Bay Area, Los Angeles
and Seattle have roughly doubled over the past seven years. That
means prices may have to retreat further before buyers do more than
look, economists said.
"Prices have dropped in Silicon Valley and sellers just aren't
used to the concept that [prices] can go down," said Ken DeLeon,
founder of DeLeon Realty in Palo Alto, Calif. "There's just this
malaise buyers had of, 'I feel like it's gonna drop further.'"
Existing-home sales fell 1.7% to a seasonally adjusted annual
pace of 5.27 million, the National Association of Realtors said
Tuesday. Sales declined 2.2% compared with a year earlier, marking
the 16th consecutive month of annual declines in sales.
The spring selling season is crucial because about 40% of the
year's sales take place in March through June. Falling sales during
most of this period have puzzled economists. They struggle to
explain why the housing market has remained soft while the rest of
the economy has been booming.
Borrowing rates have fallen to their lowest levels in two years,
wages are rising and unemployment is at a 50-year low.
"It doesn't make economic sense," said Lawrence Yun, the NAR's
chief economist.
The lack of momentum during the spring could now mean a
prolonged slowdown in the market, some economists said.
"The demand this cycle is certainly showing signs that perhaps
it's reached its full capacity," said Ralph McLaughlin, deputy
chief economist at real-estate data provider CoreLogic.
Still, there was some reason for optimism in the June report.
While sales declined in the South and the West, they actually rose
slightly in the Midwest and Northeast, according to the NAR.
Some economists expect lower mortgage rates will eventually lure
more buyers, and additional inventory could help stabilize the
market that has been pinched by limited supply and high prices in
many metro areas.
"We think by the end of the year, total home sales, both new and
existing, will probably not be much different than where they were
last year," said David Berson, chief economist at Nationwide
Insurance.
Purchases of previously owned homes account for roughly 90% of
U.S. homebuying. The Commerce Department releases June new-home
sales data Wednesday.
Home builders have turned more cautious in recent weeks. Ryan
Marshall, chief executive of PulteGroup Inc., an Atlanta-based
builder, said on a Tuesday earnings call that the company's sales
figures for the rest of the year would likely be softer than
analysts expected. Pulte shares were down more than 7% in Tuesday
trading.
Nationally, new-home sales have disappointed this year, falling
3.7% in May compared with the year prior, according to the
Department of Commerce.
A deepening slump in expensive coastal markets also shows little
sign of reversing. The median price of a home fell in San Jose,
Seattle and Los Angeles in June compared with a year earlier,
according to Redfin. For San Jose, that was the seventh month of
annual price declines.
The slowdown in the West Coast markets now spans all price
points, including starter homes, which had been the tightest
segment of the market. In San Jose, inventory for homes in the
bottom-third price tier nearly doubled in June compared with a year
earlier, while prices dropped 3.8%, according to Redfin.
Michelle Englert, a Bay Area real-estate agent, hosted an open
house in a San Jose condo on June 21. The asking price was
$770,000, well below what other condos in the complex were priced
at.
"We priced this aggressively low because there are two other
units in this building that have been sitting for 30 plus days,"
said Ms. Englert, who has worked in the area for nearly 20 years.
"We just wanted to shotgun sale it and see what happens."
Ms. Englert said she has noticed buyer fatigue over the past
year and thinks the area might be tapped out. "People are looking
but not pulling triggers," she said.
Coastal housing markets were the first to rebound from the
housing bust thanks to an influx of young, affluent professionals
and a shortage of housing, especially at prices affordable to
first-time buyers.
But after years of double-digit increases, prices in those
markets have overshot what even many well-off young buyers can
afford, and agents said they see many buyers dropping out of the
market or pausing their searches.
The 2017 overhaul of the federal tax code that capped the
deduction for state and local taxes at $10,000 and reduced the
limit for the mortgage-interest deduction has also dampened demand
for more expensive homes in high-tax states.
In Portland, Ore., 30-year-old Alisa Rudnick and her fiancé have
been searching for their first home since January, hoping to settle
somewhere before their September wedding. They were targeting a
home for less than $500,000 and in the city, but after being outbid
at more than asking price on four separate occasions, they have
suspended their search.
"We put our search on hold to focus on the wedding," Ms. Rudnick
said. "We're going to try again in the off cycle."
While price declines are concentrated on the West Coast, other
costly markets such as New York, Boston and Denver area also
weakening.
Denver saw the second-largest increase in starter homes for sale
in June, according to Redfin, at nearly 63%.
"We are entering a buyers market hard," said Steve deGuzman, an
agent at REX Homes in Denver. "Values accelerated so quickly we
don't have a way for the first-time buyer to enter the market."
Write to Laura Kusisto at laura.kusisto@wsj.com and Will Parker
at will.parker@wsj.com
(END) Dow Jones Newswires
July 23, 2019 17:47 ET (21:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.