Navigating the Numbers: What Does the Data Released in July Reveal About the U.S. Housing Market?

The U.S. housing market is one of the most highly talked about topics in America today. With the number of reports that seem to come out everyday, it can be difficult to identify which way the real estate market is swinging and whether or not it’s a good time to buy or sell. 

Knock’s mission, aside from making it as easy to trade-in your house as it is to trade-in a car, is to help consumers better understand the real estate market by providing them with more data and transparency than ever before. In line with that mission, we’re excited to begin a monthly blog series helping home buyers and sellers make sense of all the data that gets released about the U.S. housing market, so they can make more informed decisions about what is likely the largest financial transaction of their lives. 

Catching Up on Spring Home Buying Season 

First, let’s recap what’s been happening before this series began. June is typically the end of the busy spring home buying season in most U.S. housing markets. Nearly half of home buyers have children. Since it’s easier to move and settle into a new house once school lets out for the summer, families need to start looking in the spring if they want to get situated before the next school year starts. 61% of these buyers – like the customers we help at Knock – also already have a house to sell.

u.s. housing market suburbs

With homes hitting the market and plenty of people looking to buy, you have the perfect storm to create a housing market uptick. In May, MarketWatch wrote that the market seemed to be reaching a peak, with sales up 2.5% and inventory up 4.9% over the previous month. But S&P CoreLogic Case-Shiller continued to report a deceleration of home sale prices, which had caused a lot of buzz about a potential shift to a buyer’s market during the spring. 

So what actually happened? There are plenty of factors beyond sales and prices that influence the real estate market. In this blog, we’re breaking down the current state of the U.S. housing market, referencing key insights and research along the way to help you see the bigger picture. For now, we’ll focus on the key takeaways from all the reports that came out in July.

Monthly Measures

With so many reports and data sets on the U.S. housing market released seemingly everyday, it can be hard to keep track of what’s most relevant and how everything ties together. Each month you can expect to see new data about a few key indicators: Prices, inventory, sales, new construction, and mortgages. However, something to keep in mind is timing. Some reports reflect data from the month prior, while others, like the S&P CoreLogic Case-Shiller Home Price Indices, actual reflect home sales numbers from two months before. Still, taking a look at these can help us better understand current trends and where the market might be headed. 

Summing Up the Numbers Released in July 

On the whole, the data published in July show an overall flattening of the U.S. housing market. Here’s a high-level look at the month-over-month changes to the key indicators we’ll be addressing in the first half of this post: 

U.S. Housing Market numbers in July
  • Home Sales: Sales of existing homes, or non-new construction homes, declined 1.7% month-over-month in June (National Association of Realtors). Pending home sales rose 2.8%. 
  • Home Prices: Adjusting for seasonality, home prices increased 0.2% month-over-month in May (S&P CoreLogic Case-Shiller Home Price Indices). The median home sale price in June was $285,700, an all-time high. (National Association of Realtors).
  • New Construction: New housing starts were down 0.9% month-over-month in June, while permits were also down 6.1% (US Census).  
  • Inventory: The number of existing homes for sale increased 2.8% month-over-month in June (National Association of Realtors). 
  • Mortgages: Mortgage applications declined 1.9% week-over-week on July 24th, with the latest mortgage rates at 4.08% (Mortgage Bankers Association).

Of course, month-over-month changes don’t necessarily tell the whole story. Let’s explore what the latest numbers mean for you as a home buyer or seller, and what they say about the overall landscape of the U.S housing market. 

Digging into the Data 

Home Sales Keep Ping-Ponging

As we explained, June typically marks the end of the busier spring home buying season, and this year’s numbers are no exception. Many U.S. housing market reports focus on existing homes, or those that have been previously bought and sold. Sales of these homes decreased by 1.7% from May to June, and total sales are down 2.2% since this time last year.

But, things are looking up when it comes to housing contracts; June was the second consecutive month where we saw an increase in pending home sales, rising 2.8% from May. This could be an indicator that spring and summer were positive for real estate sales, and that we should see an uptick in existing home sales in the next month or two, once these deals are finalized. 

Looking only at sales of existing homes, however, doesn’t give us the full picture. After two slower months, sales of new construction homes increased by 7% in June. This brings total sales of new construction homes to 646,000 so far this year, which is significant when you consider existing home sales are at 5.27 million so far for 2019 – it increases total U.S. sales by about 12%. 

Home Price Growth Continues to Decelerate 

When it comes to home buying, price is one of the most, if not the most, critical factors that determines whether or not someone will even consider looking. So what is the current price of a home in the U.S.? Of course, it varies, but the latest numbers show a median price of $285,700 for all home types. This represents an increase of 2.8% month-over-month in June, and the 88th consecutive month of year-over-year price gains. 

Depending on where you live, that may seem reasonable or outrageous. So many people look to the rate at which home prices are changing when deciding if it’s a good time to sell or buy (or both!). The most recent S&P CoreLogic Case-Shiller Indices have shown a deceleration in price growth. In May, the annual gain was 3.4%, which was down from 3.5% in April. 

At the same time, we can’t forget the role new construction plays. In June, the median sales price of these homes was $310,400, 8.6% higher than the median existing home sales price. As more new construction gets built, it can contribute to driving up prices in the neighborhoods they’re in, or even in the market as a whole. 

Mortgage Rates Are Low, But So Are Applications

There’s another important piece to the puzzle that can help give us an idea of where the U.S. housing market is headed: Mortgage applications. Whether you’re buying and selling at the same time or a first-time home buyer, the average American needs a mortgage in order to afford a home. 

Rates have been on the decline, currently at 4.08%, which represents a near three year low. You would think this would drive buyers to start putting in offers, but demand isn’t following suit; in fact, mortgage applications fell 1.9% in mid-July, the fourth straight week of decline. Concerns about rising prices – and lack of available inventory, but more on that in a bit – certainly play a role here, but it really varies by what you’re looking for and from market to market. If you’re buying and selling at the same time, waiting to buy could not only mean missing out on lower mortgage rates, but also on getting a higher price for the home you’re selling. 

Phoenix housing market numbers

Home prices and sales can vary drastically depending on the region. To demonstrate, let’s take a look at our Knock market of Phoenix. The Phoenix market is experiencing a rise in home prices that mimics the area’s temperature, with annual home price gains at 5.7% in May. And the median home price in Phoenix is $289,000, higher than the national average. Still, the statistics show that existing-home sales in the West fell 3.5% in June. Why? These high list prices could be deterring buyers from making a move. 

On the flip side, Dallas home price gains are moving much slower, at 2.7%. Although Dallas’ price increases are slower, the city’s average home price is significantly above the national average, at $399,000. And existing-home sales in the area fell 3.4% in June, showing that prices may be too high for prospective buyers. 

Clearly, the cost of a home is dependent not only upon the type of home or size of it, but where it’s located. Time of year, like the busy spring and summer seasons, and regional demand can also influence home price, based on demand and competition. Taking a look at current market reports, referenced here, can help you get a better understanding of the market in your area.

Buyers May Be Demanding a Different Kind of Inventory

Of course, Americans can’t buy and sell homes if there aren’t homes available to buy and sell. This is what we define as inventory, and it has significant implications for home prices and the market as a whole.

As of June, the U.S. has a 4.4 month supply of homes for sale, slightly above the threshold for a seller’s market, and relatively unchanged year-over-year. Inventory levels for existing homes rose 2.8% month-over-month in June, slightly down from the 2.9% growth seen in May, but significantly less than the 6.4% growth seen in January, a downward trend that’s continued each month. 

When considering home availability, the good news is we aren’t just limited to existing homes. This month the U.S. Census Bureau reported 1,220,000 building permits and 1,253,000 new housing starts. Although building permits are lower than both May 2019 and June 2019, housing starts are up 6.6% from June 2018, showing that more ground is being broken this year. Builders are highly confident in the sale of new build single-family homes, with confidence rising a full point, to 65, in July; this data shows that if interest remains high, builders will continue to deliver.

When it comes to housing inventory, some regions have more supply than others, both existing and new construction. Unsurprisingly, new construction housing in the South is booming. In June, 618,000 new privately‐owned housing units were authorized in the South; this number is significantly higher than any other region in the U.S. With more people migrating from expensive metros, like San Francisco and New York City, to more reasonable, yet growing cities, like Knock’s first market of Atlanta, there is interest in new-build communities that offer big-city amenities at a more affordable price. 

New construction housing numbers July 2019

There are over 1,000 home builder communities in Atlanta today, according to NewHomeSource, and that number is constantly growing. Curbed notes that millennials are the most active homebuyers in the region, so consumer demand and preferences will also play a role here. For instance, a recent Business Insider article highlighted how millennials, driven by current home trends and more eco-friendly lifestyles, aren’t interested in the “McMansions” built and purchased by baby boomers. More millennial home buyers might opt to design a smaller, custom home instead of buying an older model from a baby boomer looking to downsize, which may be contributing to the growing demand for new construction in the region. 

Top of Mind Trends

The data discussed so far helps us keep more regular tabs on what the housing market is doing, but sometimes taking a step back and looking at longer time periods can reveal interesting trends beyond just core indicators. Some of these reports come out every few months or once a year, and others bring entirely different issues to light. Let’s start with an important quarterly report. 

Homeownership Remains High – Even with Millennials 

With all this talk about home buying and selling, we can’t forget a very important indicator on the other side of the real estate market equation: Homeownership. Just how many people in America own homes? According to the US Census Bureau’s just-released report, the overall homeownership rate is 64.1% as of the end of Q2 2019. This rate, which has remained steady in the last few quarters, is at a four-year high. When it comes to homeownership by region, the South (which includes our Atlanta, Charlotte, and Raleigh markets) is even higher than the average at 66%. So why is homeownership at a high? Despite recent talk that said millennials just aren’t buying homes, the data says otherwise.

young family moving in

Millennials finally have enough confidence, and financial stability, to make the leap from renting to buying. Homeownership of people both in the 35 and under bracket and the 35 to 44 age range increased within the last year, proving that the millennial generation is influencing homeownership rates as a whole. About 60% of people between the ages of 35 to 44 are homeowners, demonstrating that people at the higher end of the millennial bracket are in fact purchasing homes. This spike in homeownership among younger generations may not come as a surprise, as mortgage rates sit at an attractive low. 

But, that’s not to say that baby boomers are being pushed out by up-and-comers. In fact, they’re choosing to stay in their homes longer. With longer life expectancies, more years in the workforce, and more independence than their parents and grandparents, baby boomers aren’t hurrying to senior living facilities and selling off their family residencies. According to the same report, 78% of people 65 and older are homeowners. And 75% of people in the 55-64 bracket also own houses. Baby boomers staying put could potentially mean less available inventory in the coming months and more competition for people looking to purchase. 

Affordability is Top-of-Mind 

So, what is potentially causing declining interest in obtaining a home mortgage? CNBC notes that overall affordability could be to blame. When we say affordability, we mean the ability to afford a home based on home prices vs. income. Although home prices are rising at a slower rate, home buyers, especially first-timers with lower incomes, are probably experiencing sticker shock. With the average existing-home sticker price around $285,000 and the median household income around $61,000, purchasing a house might be simply unattainable, or at least difficult, for many. While people may recognize that interest rates are currently low, they’re trying to look at the bigger picture, including the cost of the home and future payment responsibility in the context of today’s socio economic environment.

However, we may be seeing a more even playing field sooner rather than later. In the hot seller’s market, sellers were confident in listing their homes at a higher price due to buyer demand and competition. This tactic can pay off when competition is fierce and inventory is low, but the reality is that overpricing typically results in discounting the list price later on.

For instance, Knock sees these effects in our own quarterly analyses of the market. Using the same machine learning-driven algorithms we trust to help determine the market value of our customers’ homes, we predict outcomes for on-market listings across 45 of the largest U.S. markets. These Knock Deals Forecasts show that high list prices don’t always result in the seller gaining that extra profit. The data revealed that in Q2, 61.52% of homes sold below their original list price, or at a discount. With a median home value of $227,700, and the median existing-home price around $50,000 higher than value, it’s clear that there is a disparity between home price and value. This comes as no surprise when we look at the amount of sellers who overpriced their listings and then discounted them in order to make the sale. 

Raleigh housing numbers

Taking a look at a market that Knock currently operates in, Raleigh, we see how a smaller secondary city could be facing affordability challenges. The city was ranked on the Top 10 Best Places to Live by U.S. News and has an unemployment rate of just 3.4%, making it an attractive option to people in other markets. So much so, that the area saw a population increase of 18% from 2010 to 2017, with 78% of people coming from out of state. With all this increased competition for homes, it is predicted to be the 15th worst market for finding discounts in our ranking, and was the 13th worst in Q2 2019. 

So, what does this all mean for people looking to buy? A glimmer of hope, maybe, that although you may be surprised by the initial list price, there is the potential to get a discount on your next home. And hopefully it serves as a lesson to sellers as well; overpricing your home doesn’t mean you’ll get that amount you were hoping for. Especially with increased inventory, it’s important not to price yourself out of the running if you want to find a buyer. 

Tying it All Together 

As illustrated in the Q3 Knock Deals Forecast, the U.S. housing market on the whole seems to be experiencing a slowdown. We’re predicting to see a more balanced market, with 65.3% of current on-market homes expected to sell below list price, essentially flat from the Q2 prediction of 63.4%. 

On the one hand, this means we can’t report an exciting jump in opportunities for buyers. On the other, buyers in some of the historically most expensive and competitive markets may find some relief. For instance, markets in California that have consistently been at the bottom of our ranking are also seeing some of the biggest gains in the rates of homes finding discounts. In Q2, San Francisco saw a 15.2% year-over-year increase in the rate of deals, while San Jose saw a 27% increase. A recent Wall Street Journal analysis echoed this slowdown on the West Coast, reporting a decline in home sales and the first reduction in prices since 2012.

washington dc homes

Overall, it seems like most markets should continue to even out as we finish out the summer months. It’s important to note one outlier, however: Washington, DC. The introduction of Amazon’s HQ2 to Arlington, VA is making competition for homes there fierce, with the market seeing some of the biggest declines in opportunities for discounts. Clearly, factors outside of the real estate climate can have an effect on home prices and availability. Keeping up with social and economic trends can help you make more informed decisions on the housing market. 

With all of this information, both on the immediate state of the U.S. housing market and the outlook as a whole, there are plenty of takeaways for both buyers and sellers. We don’t have the exact answer as to where the real estate market is going next, but our goal is to empower you with the right information to make the best decisions for you and your family. So stay tuned – we’ll be back exploring the current state of the industry next month, revealing more insights and trends about the U.S. housing market. 

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