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After ending 2018 in a serious slump, demand for housing is suddenly soaring again, thanks to a drop in mortgage rates that could be temporary.
Still, spring has sprung early, as buyers hope to get a quick deal before rates turn higher again.
The average rate on the 30-year fixed mortgage rose throughout much of 2018, hitting a recent peak in November at just more than 5 percent. Rates had been in the 3 percent range throughout 2016 and 2017, which helped produce the run-up in home prices.
When rates began rising again last year, the combination of high prices and higher rates took its toll on sales, which fell sharply in the second half of last year to the lowest level in several years.
But mortgage rates began to slide again in November, falling back even more dramatically in December, when the stock market sold off and the government was on the verge of what would become the longest shutdown ever. That drop in rates is now suddenly registering with buyers and reinvigorating housing demand.
"It kind of caught us a little bit off guard," said Laura Barnett, a real estate agent at Re/Max DFW Associates in the Dallas area. "We actually did get a surge of buyers coming in. And, matter of fact, I worked with two this weekend, one of which is under contract, another is about to be."
At an open house she worked last Sunday in Coppell, a suburb of Dallas, there was a traffic jam of buyers on the front stairway. Buyers like Celena Vittorio had one thing top of mind.
"Interest rates are low. They're on the decline, which is great," she said.
Vittorio and her family of five are hoping to get out of their rental and into a home of their own.
The rise in home prices has also slowed down. While prices in December were still up 4.7 percent annually, according to CoreLogic, it was the smallest gain in over six years.
"Higher mortgage rates slowed home sales and price growth during the second half of 2018," said Frank Nothaft, chief economist at CoreLogic. "Annual price growth peaked in March and averaged 6.4 percent during the first six months of the year. In the second half of 2018, growth moderated to 5.2 percent. For 2019, we are forecasting an average annual price growth of 3.4 percent."
That has some buyers on the sidelines, concerned they could buy something today that would be worth less tomorrow. Others see an opportunity.
"When you see those numbers coming down you want to go 'OK this is the time buy.' You certainly don't want to buy at the top of the market," said Dallas-area buyer Vittorio.
The share of homes with price cuts rose in January, according to Realtor.com, which likely led to the surge in buyers toward the end of the month. The pricier the local market, the bigger the cuts. In 39 of the 50 largest markets, the share of price reductions increased. Las Vegas saw the greatest jump, up 16 percent. It was followed by San Jose, California (up 9 percent), Seattle (up 8 percent), Orlando, Florida (up 6 percent), and Phoenix (up 5 percent).
Add that to lower rates, and suddenly agents are scrambling to list more homes, even before the spring market officially begins.
"I think they're taking advantage of it, and we don't want to miss that opportunity, so we're trying to get busy with our listings too and start getting our listings on the market early," said Barnett, the real estate agent.
The trouble is that while there are more houses coming on the market, and prices are easing slightly, there are still not enough affordable homes for sale. Supply is increasing largely because homes are sitting on the market longer.
"It's important to remember that we're coming off of four straight years of inventory declines that pushed the market to a record low availability of homes for sale," said Danielle Hale, chief economist of Realtor.com. "The real metric to keep an eye on is entry-level homes, which are the key to getting today's market back in balance. These homes are still in short supply."
That is in part because of soaring demand from millennials and because after the housing crash, millions of entry-level homes were purchased by investors and turned into single-family rentals, removing them from the overall housing stock.
Homebuilders are not even close to making up for the shortfall. The homes that they are building are largely in the move-up and luxury sectors. But even they saw a jump in demand to start the year.
"Builders in Florida have reported stronger sales in January and are attributing it to the lower mortgage rates," said Lesley Deutch of California-based John Burns Real Estate Consulting. "Most builders have been surprised at how sensitive the demand is to small changes in the mortgage rate."
Amit Vyas and his family are looking to move up to a larger home in suburban Dallas, which used to be a pretty affordable market. Now, with employment there rising and strong demand from Chinese buyers, the market is changing.
"If you're looking in a range with just five to six-fifty, it's very competitive. But, once you go above seven-fifty, I think it gets a little bit more open in terms of it's not as competitive close to a million dollars," said Vias, who wants to take advantage quickly of the pause in rates.
"I think it's a good market because, just to be honest, I think the rates are going up, and people are scared to step out into the market," he added.
If rates rise again, buyers will likely pull back. So many of them are on the margins to begin with, given today's high prices. Even small moves price buyers out. More homes are likely to come on the market in the spring, as they usually do, but sellers have less and less incentive if rates rise as well. They would be paying a higher rate to move.
The Coppell house was listed at $950,000 and had surprisingly strong demand, according to Barnett.
She expects an offer this week, proving that – for now anyway – even the high end is in high demand.
Correction: This story was updated to reflect the correct spelling of the names Celena Vittorio and Amit Vyas.