Selling a Home a Gets Trickier in a Slowing Market

The recovery in the housing market is starting to slow. That reality should inform your strategy for buying or selling a home, and might even be significant if you plan on staying in your current home.

In late July, the S&P/Case-Shiller Home Price Indices released data on the housing market through the end of May. The latest figures show that the housing market is still rising, but the pace of increase is slowing dramatically. Given the importance of momentum to the housing market, this slowdown could signal the beginning of a new trend.

For fourteen straight months, from March of 2013 through April of this year, the S&P/Case-Shiller 20-City Composite posted double-digit year-over-year increases. The pace of increase peaked at 13.70 percent last November, but now has slowed in each of the six months since then. May marked the first time since February of 2013 that this index fell into single-digit territory, at 9.34 percent.

To be sure, a 9 percent increase is still a sign of a healthy real estate market. However, if the pace of price increases continues to slow, the market could rapidly become more stagnant. Already, some areas are seeing price gains down in the low single digits, and that can greatly change the dynamics of buying or selling a home.

Impact on Consumers

Obviously, would-be buyers benefit from weaker home prices, while sellers suffer as a result. However, the current situation is a little more nuanced than that because prices are not actually declining - they are simply rising at a slower pace than they had been. Anyone planning on buying or selling a home needs to adapt to this shift in momentum, and existing home owners should understand that it might impact their refinancing or home equity borrowing opportunities. Here is a rundown of how the slowing housing recovery could affect buying, selling, and staying put.

  1. Buying a home. A scary feeling for would-be home buyers is the sense that the housing market is running away from them due to rapidly rising prices. This was a common sensation a decade ago, when the percentage annual increase in home prices was regularly in the double digits. The housing market recently reprised that environment with its recent string of double-digit year-over-year price increases, but now that pace has slowed to just over 9 percent. This more orderly growth rate is helpful to home buyers, because a fast-rising market can influence them to rush their searches and bid too aggressively on properties for fear of losing out. Perhaps now home buyers should be more wary of mortgage rates than of home prices. Those rates are still amongst the lowest of all time, but with inflation pressures starting to grow, that may not last.
  2. Selling a home. They say a rising tide floats all boats, and a rising housing market makes selling a home relatively easy. When prices are climbing quickly, a home seller can afford to price the property ambitiously, and if it doesn't sell right away, the market will soon rise to meet the hoped-for price. In a more stagnant market however, overpricing a home can mean an extended delay in selling it. The slowdown in housing price increases means sellers need to be more insightful about pricing their homes. The key here is to study your individual market. For example, among the 20 major markets measured by the S&P/Case-Shiller Home Price Indices, the hottest lately has been Las Vegas, with a 16.86 percent year-over-year increase. In contrast, the Cleveland market increased by just 2.39 percent over the past year. Those rates of increase call for different pricing strategies, and of course, supply, demand, and price dynamics can vary on an even more specific neighborhood level.
  3. Staying put. Price movements matter even for home owners who are not interested in selling out. Those price movements directly affect the amount of equity people have in their homes, which in turn can drive decisions about refinancing and home equity borrowing. With prices still rising, most home owners should still be steadily building equity, but with those prices rising more slowly, home owners interested in refinancing or home equity loans should consider the merit of capturing whatever opportunity exists now, or else risk the possibility of missing out due to rising mortgage rates.

When negotiating on home prices, buyers and sellers sometimes get hung up on relatively minor amounts, which is unfortunate because changes in home prices or mortgage rates can quickly overwhelm such small differences. One thing sellers should bear in mind, especially with the housing rally losing momentum: buyers have the upper hand in that they have a choice of properties to buy, while sellers have to move a specific property. Therefore, in any negotiation, sellers have to weigh price differences against the cost of delaying the sale of the property. Slower price growth in the real estate market may only lengthen such delays.

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