There’s no denying that the real estate market has bounced back. We’re several years into a recovery, with prices and buying activity well off post-crash lows. However, plenty of signs suggest that this red-hot revival will cool down sooner rather than later. Here are three.
1. Young Americans Are Renting Instead of Buying
Owning a home is apparently no longer the American dream. Just 33 percent of the homes being sold these days are purchased by first-time homebuyers, according to the National Association of Realtors. This is the lowest rate in nearly three decades.
It isn’t hard to see why. The housing boom has pushed desirable properties out of their price range. Between record-high student loan debts and new expenses that didn’t exist a few years ago, including smartphone data plans and in-home Wi-Fi, there isn’t a lot of money being saved up to make a down payment.
Favoring rentals over outright purchases isn’t enough to dent the housing market. After all, rentals require folks to buy properties to flip them over as rentals. However, young Americans are moving away from the suburbs. The urbanization trend is real, with young renters choosing to live in revitalized downtown areas where cars aren’t always necessary.
2. There’s a Glut of New Homes on the Market
Real estate developers seem to be repeating the same mistake they made before the sudsy housing market crashed in 2007: overbuilding. The supply of newly constructed homes on the market clocked in at 207,000 for September, up 13 percent from a year earlier. That’s the highest number since 2010.
Now, the U.S. Commerce Department is showing sales of new homes at its highest rate in six years, clocking in at an annualized clip of 467,000 properties as of the end of September. However, that came after revising its August annualized clip down from 504,000 to 466,000. Momentum is definitely slowing, and that could be an indicator that the frothy bubble is about to burst.
3. Median Home Prices Are Starting to Slow Down
The one thing driving the interest in real estate is that it’s been a good investment. Speculators have been snapping up properties, knowing that they have a good chance of flipping them several months later at a higher price. That game is getting tired.
The National Association of Realtors says that the median price of an existing single-family home during the third quarter was $217,300. That may be up 4.9 percent from where we were a year ago, but that doesn’t cover the brokerage costs in reselling a property or the carrying costs. It also doesn’t help that newly constructed homes in September sold for less than they did a year earlier, as homebuilders try to work through their own glut of properties on the market.
As flippers take a breather and international investors bow out — and with mortgage rates so low that it would seem logical to expect higher borrowing costs in the future — it wouldn’t be a surprise to see the housing market’s recovery take a step back here.
Rick Munarriz is a Motley Fool contributing writer. Try any of our Foolish newsletter services free for 30 days. Building your portfolio? Find out our favorite high-yielding dividend stocks for any investor in our free report.