After a roller-coaster decade of boom-bust-boom, the U.S. housing market is going downhill just when many economists thought annual sales would be heading up.
Sales of previously owned properties in March tumbled 7.5 percent from a year earlier to the slowest pace in 20 months, while purchases of new houses sank 14.5 percent from February, according to reports this week. Mortgage applications to buy homes plunged 19 percent from a year earlier, indicating slowing demand during what is typically the busiest season for deals.
The housing market’s underlying fragility is emerging as outside influences that fueled a two-year rebound are receding. Mortgage interest rates are rising from record lows as the central bank withdraws its stimulus, and investors, who had helped drive national prices up more than 20 percent as they went on a buying spree, are now retreating.
“The very low rate environment and the high level of investment activities really masked how weak the housing market was,” Sam Khater, deputy chief economist at Irvine, California- based CoreLogic Inc., said in a telephone interview. “Once it goes back to the normal owner-occupied purchase market, you really realize how weak the market is.”
While last year’s spring buying season was characterized by bidding wars across the country as buyers rushed to take advantage of record-low mortgage rates amid low inventory, the market so far in 2014 has been more affected by issues specific to local geographic areas.
Phoenix, Denver
Sales are slipping in Phoenix and Las Vegas, where traditional buyers aren’t stepping in to fill the void left by investors. In San Francisco, Denver and Dallas, where job growth is robust, listings are scarce and overpriced for many house hunters.
“We’ve had a boom and we’ve had a bust, and those were all national events,” said Mark Palim, vice president for applied economics and housing research at Fannie Mae in Washington. “Now that national drivers are less significant to the market, you’re seeing the re-emergence of local economic factors.”
Buyers, already handicapped by tight credit and weak wage growth, felt the hit to their purchasing power when mortgage rates jumped last year. The average rate for a 30-year fixed mortgage was 4.33 percent this week, according to Freddie Mac, up a full percentage point from near record lows last May as the Federal Reserve scales back bond purchases. That raised the cost of a $200,000 mortgage by 13 percent, with monthly payments climbing to $993 from $881.
Average mortgage down payments remain low compared with levels before the housing boom. In 2013, borrowers put down 10 percent, on average, compared with 16 percent in 2003, according to data from the National Association of Realtors.