In a sign that the housing market has taken another turn for the worse, a new report shows almost a quarter of all home listings in the U.S. had at least one price reduction in June.
The price cutting is widespread too. The report, released Wednesday by residential real estate tracking firm Trulia, shows 21 of the country's 50 largest markets cut prices on at least 30% of their listings, up from 10 markets in May.
Minneapolis led the way, with 40% of its listings registering at least one price reduction. This was followed by Milwaukee, Dallas, Boston, Baltimore, Phoenix and Memphis, which all slashed prices on more than 32% of their listings.
"Sellers are feeling the heat this summer as the economic recovery simmers down and home inventory levels climb," said Pete Flint, co-founder and chief executive of Trulia, in a statement. "We're seeing more sellers reduce their home listing prices to attract potential buyers." Housing inventory rose 5% between April and July.
Moreover, waning consumer confidence, continued high unemployment, fears about a double-dip recession and a volatile stock market are all shaking buyer confidence in a possible housing-market recovery. "It's the perfect storm for creating less demand," says Ken Shuman, a spokesman for Trulia. "People are nervous." Recent housing data, including sharp drops in pending home sales, housing starts and mortgage applications for new home purchases, have all served to fan those fears.
Probably the biggest factor influencing sales recently has been the federal homebuyer tax credit. The credit was particularly effective in bringing first-time homebuyers into the market. But now that it's over, move-up buyers are having a tougher time selling their existing homes, since the entry-level buyers have all but disappeared, says Alex Barron, founder and senior research analyst at Housing Research Center LLC. Under the federal tax-credit program, a home had to be purchased by April 30 in order to close by the June 30 deadline. "The whole market has slowed down anywhere from 30% to 40% across the country," says Barron. "When supply exceeds demand, you have to lower the prices."
Although the average price cut, according to the Trulia report, was 10%, some markets saw significantly bigger reductions: Detroit slashed prices by 26% on average, Las Vegas dropped prices by 15%, and both Miami and Phoenix saw average cuts of 13%. The total dollar amount slashed from home prices in June was $27.3 billion, the report said.
Home sellers are under the gun to cut prices as they try to compete with foreclosed properties and short sales, which continue to climb. "If your home has been on the market for four months and it hasn't sold, you have to adjust your price," says Shuman.
Raylene Lewis, a realtor at Century 21 in College Station, Texas, says she urges today's sellers to look at the prices of comparable homes sold recently, rather than the listing prices, when setting the sale price. "I definitely think we have more inventory," she says. "But everything will always sell for a price."
Another change in the market, Lewis says, is that she now must qualify the seller in addition to the buyer to make sure the seller will have the cash needed to pay off the mortgage and cover legal, realtor and other fees when the home is sold. She recalls how one seller in College Station recently didn't show up at closing because he didn't have the cash to cover the closing costs.
With so many dark clouds hanging over the housing market, experts recommend homeowners hold off putting their homes on the block unless they absolutely have to sell now. "If you are trying to be an opportunistic seller and you don't have to sell, there's no reason to have it on the market right now." says Shuman. "The demand is not there."