Home prices have enjoyed explosive growth in recent years, but that run-up may be nearing an end.
The Federal Reserve has raised short-term interest rates, which affect mortgage loan costs, twice so far in 2018, with two more increases expected yet this year. Combined with several years of dramatic price increases, limited inventory and slow wage growth, that is pushing some buyers out of the market. Less demand means sellers can't ask as much for their homes.
"Demand was so high for so long, and the inventory was so low, that sellers raised prices because they could," said Nikolas Scoolis, an analyst with Meyers Research, a housing consultancy. "We may have reached an inflection point. Buyers may now be thinking this price feels expensive for what I'm getting, and sellers may have to reset their expectations."
That's begun to show up in listing prices, according to a survey by Zillow.
Home sellers have cut listing prices across much of the country, according to the real estate research firm. About 14 percent of all listings in the U.S. had a price cut in June, up from a low of 11.7 percent near the end of 2016. The median price cut was about 3 percent, Zillow found.
In all, home value growth is slowing in almost half the nation's 35 largest metro areas. The biggest changes occurred on the West Coast, including in Sacramento and Seattle. About 20 percent of listings in San Diego cut prices in June, up from 12 percent a year ago, the survey found. Higher-priced listings are cutting prices more often than lower-priced listings.
"The frenetic pace of the housing market over the past few years is starting to return toward a more normal trend," said Zillow senior economist Aaron Terrazas. "The housing market has tilted sharply in favor of sellers over the past two years, but there are very early preliminary signs that the winds may be starting to shift ever-so-slightly."
Still, it's too soon to call this a buyer's market, Terrazas said. Housing prices will appreciate at about double their historic rate over the next 12 months, he said.
Robert Dietz, chief economist for the National Association of Home Builders, sees price growth slowing to the 3 percent to 4 percent range nationally. Case-Shiller's repeat sale index shows prices rose 48 percent from January 2012 to May 2018, he said.
A poll released in June by Reuters found that housing prices were escalating at twice the rate of inflation and wage growth. The value of U.S. homes rose 8.3 percent during the past year with a median home price of $217,300, according to Zillow.
All this means that homebuyers will be using more of their income to make home purchases, particularly as the Federal Reserve continues to raise rates, Scoolis said.
"Rising rates ultimately make buyers ask the hard questions. What will I compromise to buy a home—location, price, design, or size?" he said.