Mortgage applications for U.S. home purchases have tumbled 17 percent since May on a seasonally adjusted basis and are down 6.9 percent from the same time a year ago. Capital Economics Ltd. last month lowered its 2014 home-sales forecast to 5.2 million from 5.4 million after U.S. pending residential sales for September that slumped 5.6 percent, the fourth straight monthly decline. The firm predicts prices will rise 4 percent next year, half of this year’s projected gain.
“We are shifting from a frenzy to where buyers are taking a step back and being more analytical and unwilling to just make rash decisions,” said Ellen Haberle, an economist for Seattle-based brokerage Redfin. Asking prices in September were lowered on about 25 percent of listings, the biggest share in two years, while last month they were cut on 23.8 percent, according Redfin, which tracks 22 cities across the country.
The inventory of unsold U.S. homes climbed in September from a year earlier for the first time since 2011, while contracts to buy previously owned residences plunged the most in three years, data from the National Association of Realtors show. The surge in values, combined with higher mortgage rates, is reducing affordability while also encouraging more sellers to list their properties, indicating that price growth will slow after the biggest increases since 2006. Reduced demand in Western states that were at the forefront of the rebound could return the country to a more normal balance between buyers and sellers after an inventory shortage sent values surging. Nevada, California and Arizona had the biggest year-over-year price increases in the country in September, at 25 percent, 23 percent and 15 percent, respectively, according to CoreLogic Inc., compared with a 12 percent rise across the U.S.
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The gains are a lagging indicator because they’re based on contracts signed months earlier. The U.S. supply of homes increased to 5 months in September, from 4.9 months a month earlier and an eight-year low of 4.3 months in January. A six-month inventory is considered equilibrium between buyers and sellers. In California, which accounts for about 10 percent of U.S. home sales, buyers now need a minimum income of $89,170 to purchase a median priced, single-family home and have to earn almost twice as much to buy a house in San Francisco, according to the California Association of Realtors.
The median price of an existing home in the state climbed to $433,940 in the third quarter from $339,930 a year earlier. “The recovery is very fragile,” Sam Khater, senior economist for CoreLogic said. “The reason why supply is going up is partially the softening of demand in the hardest-hit areas.” “Slow growth gives everybody a chance to figure out a longer-term strategy,” said Steve Turner, owner of Scottsdale, Arizona-based Coyote Capital Investments. “It’s the peaks and valleys that gives everybody angst.”
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