In the decade since the financial crisis, young buyers looking for their first home have increasingly found themselves priced out of the market.
It was a trend that added insult to the injuries inflicted by the 2007-09 recession, when unemployment peaked at 10 percent, as well as by stagnant wage growth in the slow recovery afterward.
Now, they’ll finally get a break.
Housing-price growth slowed for the seventh straight month in October, a trend that affords first-time buyers, who are typically under 35 and have lower earning power, better odds of finding a suitable home in their price range, Ralph McLaughlin, chief economist for property-analysis firm CoreLogic, told the Washington Examiner.
“What many of them have seen over the past 10 years was an economy that really went into a tailspin,” he explained. “That brought a lot of other challenges to getting their foot in the door in the job market and setting up a down-payment on a house.”
Price growth cooling to 5.5 percent, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index, starts to put more homes in the reach of first-time buyers.
It’s a trend that may expand if the market continues to decelerate in the next few years, McLaughlin added. For now, growth in prices is still markedly higher than in wages, which increased only 3.1 percent in October, according to the Bureau of Labor Statistics.
Unlike in the mid-2000s, “there are no immediate signs that the housing market is turning into negative growth territory,” he said. “It’s unlikely that we’re going to see falling prices any time soon. What we’re seeing now indicates more of a market that is coming into normalcy rather than one that’s collapsing.”
On a broader level, the housing price data add to a series of indicators that U.S. economic growth is likely to slow in 2019. Sales of new homes dropped 12 percent in October to 544,000, with an average price of $395,000, according to the Census Bureau.
The market is clearly facing some challenges as interest rates rise, said Luke Tilley, chief economist for Wilmington Trust. That may curb new mortgage loans, a large revenue source for U.S. banks, as well as earnings at home-improvement store chains.
JPMorgan Chase, the largest U.S. lender, predicted in October that rising interest rates would lead to small declines in new home sales as well as refinancing, since borrowers would be less likely to obtain lower rates than those they’re already paying.
At Wells Fargo, new residential mortgages dropped $4 billion in the three months through October, and the lender predicted another decrease at the end of the year. The San Francisco-based lender said in June it would cut 100 mortgage-unit jobs as the housing market softened in the southeastern U.S.
“We love the business,” Chief Executive Officer Tim Sloan told investors, even though “it’s in overcapacity right now. It’s unclear exactly how long it’s going to take that to shake out but it will, and that will be good for us.”
While lower turnover in the housing market crimps revenue at Atlanta-based Home Depot, the building-supply chain benefits in the meantime from people investing in home improvements when they’re forced to stay in their current houses longer.
“As we look at the future and what’s happening, fundamentally, you’ve got to look at the economy,” Chief Financial Officer Carol Tome told investors in November. “The economy is good. People are employed. They have more income. They’ve got more to come with tax reform.”
And even if the economy enters a recession, the housing market would probably be affected less than in the last one.
The number of new and existing homes at the time was near historic highs, said CoreLogic’s McLaughlin. Now, it’s near historic lows.
“If you look back over the past five recessions, only two recessions brought negative growth to the housing market,” he said. “If we do have a recession on the horizon, it probably wouldn’t bring any negative price growth at all.”
