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TH E M R EP O RT | 53 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST DATA Better Deals for New Homes More newly constructed housing units are being listed at a discount. N ew homes are increasingly being listed with price cuts according to a recent Zillow analysis that found price cuts for newly constructed housing was more common in the fourth quar- ter of 2018 than in the first one. More than a quarter of new homes had their list price cut at least once during Q 4 2018, compared with 19.2 percent in the first quarter of the year. And the trend wasn't restricted to new homes. The analysis found that 16.3 percent of all listings experienced a price cut in November 2018. The analysis put this growing trend down to slow- ing home value growth, rising interest rates, and increased inventory especially in major metro areas. It revealed that the nation's median home was worth almost 1.5 times (49.8 percent) more today than it was at the height of the reces- sion—although "the growth rate of home values has slowed in recent months." Mortgage rates also rose in 2018 after spending five years at historically low levels, the analysis noted. That, along with an increase in for-sale housing supply towards the end of the year, "eventually caused housing demand to fall." "More newly built homes are seeing their list prices drop, but the size of those price cuts has been remarkably steady which suggests that the trend we are seeing is being driven more by price discovery than by desperate sellers," said Aaron Terrazas, Senior Economist at Zillow. Regionally, the analysis found that buyers were more likely to find a price reduction in Denver where 40.3 percent of new homes saw a cut on their listing price in Q 4 2018. On the other hand, cities like Austin saw fewer price cuts towards the end of 2018 than at the beginning of the year. However, some of the hottest housing markets in the coun- try saw the biggest price cuts on new homes, the analysis re- vealed. They included San Francisco and Los Angeles that saw price reductions at 8.5 percent of the listed price. New homes in these cities cost around $2 million even after these cuts. "The housing market cooled in late 2018, particularly at higher price points and in pricier communities where new construction has clustered in recent years. Facing high and rising construction costs, builders have few options but to target upmarket while homebuyers are increasingly squeezed by tight affordability and rising interest rates," Terrazas noted. "But the trend could be short-lived. New home building inched upward for most of the past few years, but about a year ago permitting activity began to pull back. With fewer new homes in the pipeline, these price cuts may prove to be a fleeting phenomenon." Facing the Headwinds of Affordability Even with inventory rising, middle-class homebuyers are still finding themselves priced out. D espite the increase in supply across many markets, the national supply of affordable homes is down year-over-year, according to a recent report from Redfin. According to the report, areas such as San Jose, where the median household in- come is around $117,000, experi- enced significant declines in af- fordable homes. Only 14 percent of homes on the market in 2018 in the San Jose metro area were affordable on the median house- hold income. Los Angeles and Seattle faced similar issues. In Los Angeles, 16 percent of homes for sale were affordable in 2018, down from 20 percent in 2017, while the share of affordable homes in Seattle dropped from 58 percent in 2017 to 46 percent in 2018. "Homeownership is increas- ingly out of reach for the typical American," said Daryl Fairweather, Redfin Chief Economist. "Over the last few years, builders have focused on luxury homes, and there hasn't been enough construction of af- fordable starter homes." Even with inventory increasing, many metro areas are still experi- encing serious declines in afford- ability. The San Diego area saw a 10 percent increase in homes for sale in 2018 compared to 2017, while the number of affordable homes fell by 16 percent. This wasn't the case in every metro area. According to Redfin, there were a few met- ro areas where the number of affordable homes for sale in- creased, includ- ing Hartford, Connecticut; Jacksonville, Florida; and Nashville, Tennessee. Homebuyers may also con- sider looking in areas such as St. Louis, Minneapolis, and Pittsburgh, where the majority of homes for sale are in the afford- able range. Redfin notes that increasing job opportunities and strong wage growth may help buyers in the coming year. "We expect builders to shift their attention to more affordable homes during 2019," Fairweather added, "which along with rezon- ing efforts by local governments should reduce this pressure to some degree over time." "Over the last few years, builders have focused on luxury homes, and there hasn't been enough construction of affordable starter homes." —Daryl Fairweather, Chief Economist, Redfin