Housing Market Operating at Post Peak: Buyer-Seller Balance Now Back to 2016 Levels
- Realtor.com’s months supply 50-market composite increased to 4.57 months, materially higher than in 2017, and slightly higher than 2016 levels.
- At a local level, 37 of the 50 largest markets in the country are now slowing down on a yearly basis, and 7 of the 50 are moving slower compared to 2014.
- Conditions remain relatively seller friendly in 40 of 50 markets by definition, with month’s supply at or below 5.5 months.
- The top 5 markets cooling the fastest still exude a west-coast flavor: San Jose, CA; Seattle, WA; San Francisco, CA; San Diego, CA; and Los Angeles, CA.
- The top 5 heating up the fastest are smaller inexpensive secondary metros: Albuquerque, NM; Birmingham, AL; New Orleans, LA; Kansas City, MO-KS; and Oklahoma City, OK.
Nationally, a balanced housing market remained in the distant horizon for much of 2018, as it had for the second half of the decade. Buyers struggled to find affordable homes, and sellers continued to gain leverage with the increased competition. However, late in the summer inventory followed a path of recovery as affordability crossed a tipping point and more buyers began to hold back. This meant the rate at which they were absorbing listings was finally beginning to slow for the first time in at least four years. The latest realtor.com analysis of month’s supply (the rate at which buyers are absorbing inventory) shows momentum continues to shift away from a seller’s market. The buyer-seller dynamics are now similar to 2016 – yet still far from balanced. As many of the trends continue, we expect this February to mark the sixth straight month with the balance tilting back toward buyers.
Larger markets lead the way toward cooler conditions
In November, month’s supply in the 50 largest metros combined increased to 4.57, materially higher than in 2017 (4.05), and slightly higher than 2016 levels (4.41), but still well below 2014 levels (5.93). The market cooled down in 2018, and the gains in market velocity during 2017 have been erased and the buyer-seller balance is back to how 2016 ended. Despite the change in direction, the national picture remains seller-friendly market by definition. However, 37 of the 50 markets are slowing down on a yearly basis, which effectively means this spring will feel like the most buyer-friendly market we’ve had since the start of the economic recovery. Paradoxically, it will also feel like the most unaffordable spring of the decade.
Buyer’s Market, Seller’s Market, or Balanced?
Realtor.com’s month’s supply measures the speed of the market by looking at the ratio of active listings relative to the number of home sales. The ratio is adjusted seasonally so markets can be tracked on a monthly basis. A balanced market typically equates to 6-7 months supply; while a buyer’s market equates 7 months supply and above; and a seller’s market equates to 6 months supply and under. Read more about month’s supply methodology here.
It’s not just overpriced coastal markets slowing down quickly
The speed and direction of the cool down remains local. With previously cooler markets heating up, and previously hot markets cooling down, we’re seeing conditions across housing markets even out so there is less of a difference between the hottest and coolest markets. Overpriced, boiling markets reacted first and have cooled down the fastest – but more are following suit. In fact, month’s supply in 37 of 50 markets is now above levels seen a year ago. Las Vegas, Phoenix and Minneapolis are among recent entrants to that list of slowing markets, while markets like Nashville, Detroit, and Boston continue to slow further. That said, the top five fastest cooling markets still exude a west-coast flavor: San Jose, CA; Seattle, WA; San Francisco, CA; San Diego, CA; and Los Angeles, CA. These rapidly cooling markets also are coming from deeply entrenched seller-friendly conditions and still average 3.5 month’s supply. But that also means they haven’t felt this buyer-friendly in years: sales are down 13.6% and inventory is up 39.6% year-over-year on average.
A few smaller, inexpensive markets still playing catch up
While the slowdown describes the national trend, demand for homes continues to expand into a select number of overflow markets. The proof is month’s supply in 13 of 50 markets is still below 2017 levels. The top five markets heating up the fastest are: Albuquerque, NM; Birmingham, AL; New Orleans, LA; Kansas City, MO-KS; and Oklahoma City, OK. However, these rapidly heating markets also are coming from seller-friendly conditions and average 4.6 month’s supply. Additionally, sales are up 16.2% and inventory is up 7.0% year-over-year on average. Not surprisingly, they also happen to be priced below the national median, and remain the last buyer-accessible markets in the country.
Most markets still remain seller friendly by national standards
Under traditional definitions, conditions remain relatively tight in 40 of 50 markets, with month’s supply at or below 5.5 months. In 5 of 50 markets, conditions are particularly tight, with month’s supply at or below 3 months. The top five sellers’ markets are: Grand Rapids, MI; Omaha, NE; San Jose, CA; Seattle, WA; Buffalo, NY. When compared the U.S. average, the low supply in these markets continues to heavily favor sellers. However, their emergence from even tighter conditions makes them feel more buyer friendly than usual. All but Buffalo have been cooling compared to last year. Buffalo also happens to be the top market for Millennials based on our most recent analysis of mortgage originations.
Conversely, month’s supply remains above 5.5 in 10 of 50 markets, as relatively softer conditions continue to favor buyers. The top five buyers’ markets are: Albany NY; Houston, TX; Chicago IL, Miami, FL; Virginia Beach, VA. However, only four of the top ten buyers’ markets have been cooling down compared to last year.
Markets in blue feel more buyer friendly than last year – markets in red feel more seller friendly than last year.
Are some markets officially into buyer favorable territory?
The buyer-seller dynamic is local and its effects are a function prior conditions and resulting buyer sentiment. Some markets remain seller-friendly for national standards, more buyer favorable than they’ve been in years. In 43 of 50 metros, month’s supply remains below 2014 levels but in the other seven conditions have cooled down materially, with month’s supply surpassing 2014 levels. The top five cooling markets relative to 2014 baselines are: Houston, TX; San Jose, CA; Austin, TX; San Francisco, CA; Dallas, TX.
Markets in blue feel more buyer friendly than four years ago – markets in red feel more seller friendly than four years ago.
Movement toward buyer’s market likely to continue for the rest of 2019
For Millennials and first time buyers in particular, any move away from seller conditions comes as a plus, considering many of them have only known a highly competitive market. However, inventory availability doesn’t always equate with inventory accessibility. Although the buyer-seller dynamics may finally be releasing pressure on prices, these areas remain largely unaffordable by decade standards. So while the cooldown may not bring instant visible relief to affordability in the short term, more buyers holding off and more sellers hesitating could help stabilize the affordability declines. Recent declines in mortgage rates could provide slight incentives for buyers to make a move this spring, but that could quickly be thwarted by tax season, as buyers get a better sense of their refund or lack thereof. Some have little choice, and as they see their savings and needs expand quickly this year, they will have no choice but to pull the trigger.
Methodology: Based on realtor.com‘s seasonally adjusted month’s supply estimates for 50 of the largest metropolitan areas in the country. With data as of November 2018. Month’s supply measures the speed of the market by calculating the number of months it would take for inventory to deplete at the current pace of sales. Specifically, it is calculated as the ratio of active residential listings relative to the number of sales. The ratio is adjusted seasonally to remove variability during the year so markets can be tracked on a monthly basis. A balanced market typically equates to 6-7 months supply; while a buyer’s market equates 7 months supply and above; and a seller’s market equates to 6 months supply and under. Nationally, NAR reported months supply at 4 months in November, up from 3.6 a year earlier, matching 2016 levels, but still below 5 months reported in 2014.
*Realtor.com’s 50-market month supply composite is a weighted index based on sales for each market in a given period. The following markets were excluded from rankings this month as we review their data: New York; Atlanta; St. Louis; Denver; Charlotte; Sacramento; Columbus; Hartford.