Cooling temps cooling market

Castles in the Sand

It’s a little chilly outside as I write this, however, it is December and even Florida starts to cool down a little. But is the cool weather a harbinger of our real estate market cooling off? It’s possible based on how the national markets are faring.

According to the National Association of Realtors, existing home sales in the country have declined for eight straight months. This is the longest slow-down in more than four years even after the U.S. economy has had one of its best six-month periods in a decade. The unemployment rate is near its lowest level in 50 years and the stock market for the first half of 2018 was exploding.

In conjunction with this, home sale prices also slowed based on the national statistics for September for the sixth consecutive month. The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas, reported that for the year ending in September, home selling prices rose 5.5 percent compared to 5.7 percent a year ago. So why is one-sixth of the country’s economy not growing at the same pace as the rest of the country?

Part of the reason has been the rising interest mortgage rates. According to Freddie Mac, the 30-year fixed-rate mortgage rate was 4.75 percent in mid-December. This is up from below 4 percent at the start of 2018, resulting in an increase of inventory in some markets.

A slow-down in prices is not necessarily a bad thing for some buyers who may now gain entry into the housing market after five years of rapidly rising prices, in spite of increased mortgage rates. It might also give these buyers the opportunity for their wages to catch up with the decline in pricing, again depending on which part of the country they’re in.

Some of the markets around the country that are seeing price growth are Las Vegas, Phoenix and Tampa. These are also some of the cities that had some of the biggest losses and gains during the last housing cycle. And we may not be done, according to Lawrence Yun, the chief economist for the National Association of Realtors, who says that sales seem unlikely to rebound in the short term.

There is, however, one area of the real estate market that is humming, and that’s home refinancing. Homeowners who may have decided not to move are taking cash out of the equity in their homes to make improvements, buy down credit card debt or send the kids to college. Their calculation is that even if the mortgage rate for a refinance on their mortgage is higher, in the long term it’s still cheap money spread out over the life of the mortgage.

The danger of course is overextending, home values fall, and you end up owing more than the home is worth. This is exactly what happened during the financial crisis, and even though safeguards have been put in place, homeowners still need to be prepared for any eventuality.

Like all things in the crazy financial world we’re living through, we’ll just have to wait and see if we’re facing a cooling-off period or just a blip on the radar screen. But don’t let that keep you from having a wonderful New Year celebration and an equally wonderful new year.