Home Price Growth Hit Six-Year Low; Builders Offer More Incentives

Redfin, Seattle, said U.S. home-sale prices increased by just 1.2 percent in December from a year ago, to a median of $289,800, the smallest increase since 2012.

Redfin said the median sale price of homes sold in December fell since last year in nine of the 76 largest metro areas it tracks, including San Jose (-7.3%) and Boston (-1.0%). December was the first month either metro saw home prices fall year over year since January 2012. The swing in home prices has been especially dramatic in San Jose, which saw year-over-year gains in excess of 20 percent between November 2017 and June 2018.

Meanwhile, the national number of completed home sales fell faster than it has in two and a half years, down 10.9 percent from December 2017. Home sales declined in 69 of the 76 largest metro areas that Redfin tracks.

“December may feel like a foot on the brake, but the housing market was going over the speed limit,” said Redfin chief economist Daryl Fairweather. “Home prices have been growing faster than wages since 2012, and that can’t go on forever. Now that price growth has slowed down and more homes are sitting on the market, buyers will have the upper hand in 2019. Buyers will have more options with more homes for sale, and it will be sellers working to woo buyers into making an offer. And as a bonus, buyers, for the time being, have the benefit of mortgage interest rates that are lower than they were in late 2018, which will make borrowing more affordable.”

Redfin noted the number of homes newly listed for sale in December fell from a year earlier (-4.1%), but due to the large decrease in home sales, the growth in the number of homes for sale on the market hit a 42-month high, rising 4.8 percent in December.

Of the 76 largest metro areas in the country, 46 saw an increase in the number of homes for sale compared to a year earlier, with the largest gains coming in San Jose (+131.3%), Seattle (+117.8%) and Oakland (+69.0%). The metro areas with the biggest decline in homes for sale were New Orleans (-32.3%), Montgomery County, Pa. (-24.3%) and Philadelphia (-22.4%).

Meanwhile, Zillow Inc., Seattle, reported nearly all of the nation’s largest housing markets saw the share of new construction homes with price cuts increase between the beginning and end of 2018.

Zillow reported 25.1 percent of new construction homes saw a price cut in the fourth quarter, compared to 19.2 percent of new homes in the first quarter. Zillow Senior Economists Aaron Terrazas said this mirrors a trend seen in the overall housing market, with price cuts becoming more common.

The 2018 Zillow Group Consumer Housing Trends Report said 11 percent of buyers last year bought a new construction home. For many of them, everything being new was a top reason for buying a new construction home instead of an existing home. More than a third of new construction buyers also felt it represented the best value for their money–and they might be getting even more value now.

Buyers were most likely to find a price reduction in Denver, where 40.3 percent of new construction homes had a price cut in the fourth quarter. At the beginning of the year, just 21.3 percent of newly built homes had a price cut. In Austin, price cuts were less frequent at the end of the year than they were at the beginning.

New homes in San Francisco and Los Angeles saw the biggest price reductions in the fourth quarter, at 8.5 percent. However, these markets are also two of the most expensive for new construction homes. The typical new home with a price cut in Los Angeles cost $2 million even after its price dropped.

“More newly built homes are seeing their list prices drop, but the size of those price cuts has been remarkably steady which suggests that the trend we are seeing is being driven more by price discovery than by desperate sellers,” said Zillow Senior Economist Aaron Terrazas. “The housing market cooled in late 2018, particularly at higher price points and in pricier communities where new construction has clustered in recent years. Facing high and rising construction costs, builders have few options but to target upmarket while homebuyers are increasingly squeezed by tight affordability and rising interest rates. But the trend could be short-lived. New home building inched upward for most of the past few years, but about a year ago permitting activity began to pull back. With fewer new homes in the pipeline, these price cuts may prove to be a fleeting phenomenon.”