While the good news continues to stream in, Trulia CEO Jed Kolko delivered one piece of not-so-rosy news regarding the white-hot real estate market this morning.
He told CNBC on air (rather dramatically) that prices have finally drifted lower, with asking prices off 0.3% month over month, which he called a “big change” from previous months.
While the number itself is quite marginal on the surface, it could indicate a shift in direction for the housing market after a seemingly nonstop upward trajectory.
He noted that quarter-over-quarter numbers are also beginning to slow down, though they aren’t necessarily lower just yet.
As I said two weeks ago, it appears as if housing is beginning to cool, though it will take some time for the numbers to reflect that, seeing that there is always a data lag.
“Moment We’ve Been Waiting For”
Kolko added that home prices have been rising so much so fast lately that if they kept moving at that pace, we’d find ourselves back in bubble territory within a few years.
Still, he said prices appear to be “a little bit undervalued,” assuming you compare them to long-term income and rents.
He did admit that prices have been rising similarly to what was seen during the previous run-up, though to a “much lower level.”
Perhaps they’re constrained by a lack of easy financing, with most lenders requiring much more out of their borrowers these days, as opposed to a credit report and a “choose your own income” box.
Of course, Kolko was able to spin the slow down positively, noting that with prices finally moderating, we should be able to avoid another housing bubble and subsequent crisis.
Three Reasons for the Price Slowdown
He said three factors were at play, including higher interest rates, an increase in housing inventory, and less investor demand.
As everyone knows, mortgage rates have shot up more than 1% over the past couple months, which has dented affordability, and perhaps interest in buying a home.
Secondly, inventory has increased, partially because it has become a lot more attractive to sell a home, and because some homeowners finally have the option, now that they’re no longer underwater.
Lastly, Kolko said the higher home prices have cooled investor demand, seeing that bargains are no longer easy to come by.
The biggest price slowdowns have been in the hottest markets, which include Las Vegas, the San Francisco Bay Area, and Sacramento.
In these areas, inventory was extremely tight and investor activity was so strong that prices were propelled higher and higher.
But it appears as if momentum is finally waning, and things could get even worse if mortgage rates continue to rise, and homebuilders continue to build.
The sky isn’t falling yet, but there does seem to be a little bit of caution in the air. Of course, it’s euphoria you need to worry about it – it’s when no one believes anything is wrong when things take a turn for the worse.
Read more: Five Reasons Inventory Will Begin to Rise