Photo: Robert Clark
Tight inventory and rising home prices have kept the US housing market in sellers’ territory for the last several years. Some homeowners maybe holding out for greater profits, according to a recent report by CoreLogic.
“Homeowners, especially those in high-price growth markets, are confident that by waiting to sell, they will receive a greater return on investment than they would today,” writes CoreLogic president and CEO Frank Martell, in a statement.
And with sellers largely staying put and fewer homes on the market, price pressure is unlikely to dissipate anytime soon.
National home prices rose by 6.2 percent year-over-year in July, and were up 0.3 percent month-over-month. CoreLogic expects prices to rise 5.1 percent annually from July 2018 to July 2019.
“In most metro areas, new home construction is less than is needed to keep up with demand, and because new supply has generally not kept up with demand, home price and rents have been rising,” CoreLogic chief economist Frank Nothaft tells Livabl.
After adjusting for inflation, home prices were still 13.5 percent below their 2006 peak.
Some 40 percent of the top 100 metros have an “overvalued” housing market as of July 2018.
Another 40 percent were at value, while 20 percent were undervalued.
However, when just looking at the top 50 housing markets, roughly half were considered overvalued.
“One-third of metro areas appear to be overvalued. Thus, in these metros, home prices may be approaching a plateau,” says Nothaft.
CoreLogic analysis categorizes home prices in individual markets as undervalued, at value or overvalued, by comparing home prices to their long-run, sustainable levels, which are supported by local market fundamentals, like disposable income.
An overvalued housing market as one in which home prices are at least 10 percent higher than the long-term, sustainable level, while an undervalued housing market is one in which home prices are at least 10 percent below the sustainable level.
“While markets in the western part of the country continue to experience rapid home-price growth, many of those metros are overvalued, and will likely experience a slowdown soon,” writes Nothaft, in a statement.
However, residents in many of these high-price growth markets have expectations that might be at odds with this reality.
A recent survey conducted by CoreLogic together with RTi Research revealed that 62 percent of residents in these markets expect their homes will be worth more in three years than they are today.
And, additionally, over 50 percent of residents in high-price growth markets feel they are in a “sellers’ market” and are willing to hold out in the hopes of greater returns.
But many real estate experts believe the market is slowly shifting to favor buyers, and some say it could become a buyers market as early as 2020.
“As demand slackens, sellers are less likely to have a ‘bidding frenzy’ for their home, and may discount their home in order to sell it. In other words, the market gradually shifts from a seller’s market to a buyer’s market,” says Nothaft.
Click here to read the entire report.