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There is so much demand for housing and so few homes for sale that prices have nowhere to go but up — unless of course they get so high that potential buyers have no choice but to back away. That may be what is happening now.
After hitting a peak in March of this year, price gains month to month have been coming down. In July, the latest reading on home prices, the price gain compared with a year ago stabilized at 6.2 percent. That annual gain had been accelerating in every other month this year, according to Black Knight Financial Services.
Historically, home prices have always lagged sales, and sales have been falling for the past several months. While prices are not falling, the gains are cooling.
National home price reports don't speak to the thousands of local housing markets, but some of the nation's biggest areas are seeing changes. In Southern California, prices are still up considerably from a year ago but seem to have stalled, according to CoreLogic, a real estate consulting and analytics firm. The biggest problem is lack of supply in more affordable price ranges.
Southern California's median sale price stayed largely still this summer, hovering right around $500,000 between June and August, said Andrew LePage, a research analyst at CoreLogic.
"But this summer's year-over-year gains each month averaged 8 percent, an increase from an average gain of 6 percent last summer," LePage said. "The 7.5 percent year-over-year gain in the August 2017 median sale price understates the rise in the cost of homeownership over the past year because a roughly 0.5 percentage point gain in mortgage rates over that period has caused the mortgage payment – principal and interest – on that median-priced home to increase nearly 14 percent."
In Washington, D.C., where prices have been hitting new peaks recently, the median home price in August fell more than 5 percent annually, according to the Greater Capital Area Association of Realtors, and home sales consequently moved higher.
As more and more millennials, the largest population cohort, age into their homebuying years, affordability is playing a bigger role in overall sales. The share of first-time buyers has been low for several years and moved even lower in August. The supply of homes for sale is weakest at the lower price ranges.
A new survey from the National Association of Realtors found that more current renters think now is a good time to buy a home, but fewer plan to do so, even though most expect their rent to rise next year. They simply can't afford the down payment on the current high-priced homes.
"Even though the typical down payment of a first-time buyer has been 6 percent for three straight years, two-thirds of respondents indicated that saving for one is difficult right now," said Lawrence Yun, chief economist for the Realtors. "Rents and home prices have outpaced incomes in the past few years, and this is undoubtedly impacting their ability to put aside savings for a home purchase, even if they increasingly believe it's a good time to buy."
Heading into next year, Yun says higher home prices and a limited inventory of affordably priced homes will likely keep holding back some renters who would prefer to be homeowners.
Even buyer competition, which remains incredibly high, may be finally cooling. A recent report from real estate brokerage Redfin showed that while annual price gains were still high, monthly gains over the summer were flat. That may be the result of fewer bidding wars.
"The real estate market still favors sellers, with strong demand and rising prices, but perhaps less so now than earlier in the year," Redfin CEO Glenn Kelman said in a statement. "Newly listed homes are selling faster in 2017 than in 2016, but ... the gap between 2016 and 2017 is narrowing slightly. Normally such differences wouldn't be worth mentioning, but Redfin managers of coastal markets where demand has been strongest are now reporting that some buyers are stepping back from higher prices."