TheMReport

38 | TH E M R EP O RT 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 ORIGINATION Housing Downturn Ahead? Researchers say, "Yes"—but it won't be as dramatic as the last. A housing downturn has begun, according to researchers at Trulia. However, there's no need to panic—this downturn will likely emerge quite differently from the one a decade ago, the researchers said. What's signaling the current downturn beginning to take shape is primarily declining home sales volume. This is typical of housing downturns. First sales decline, and then prices follow a year or two later, said Trulia economists Issi Romem and Cheryl Young in their outlook. Sales volume growth began to slow in 2014, plateaued in 2016, and then began to fall in spring 2018. For the past several years, sellers have had the upper hand in an inventory-starved housing market, but this is beginning to change. "Housing market indicators such as days on market (which have finally stopped declining), inventory (which is finally building up), and price cuts (which are growing more common), all indicate that sellers are facing greater difficulty in sell - ing," Romem and Young said. The housing downturn is most evident in formerly hottest markets, such as Seattle, San Francisco, and in Southern California. In contrast, the East Coast and parts of the Midwest are not yet cooling. Sales in New York and Kansas City, for example, are still growing. The reason for the emerging downturn in the housing market can be largely chalked up to tim - ing. Cyclical downturns typically take place every 10 years, so it's about that time. However, the economist sug - gested that "the downturn we're entering is inherently different from the previous one that saw home values plummet over 40%, and is likely to be mild." One major difference between today's market and the market leading up to the previous hous - ing downturn has to do with inventory. In recent years, the housing market has had low inventory, which has pushed up prices and given sellers most of the negotiating power. With home sales slowing, inventory should slowly begin to increase. Leading up to the previous housing downturn, we experienced "record-breaking rates of residential construction," according to the re - searchers. In contrast, construction has been and remains suppressed today. We are unlikely to see a flood of inventory, but rather a slow, small increase over time. As such, changes in prices should also be mild and gradual, the researchers said. In fact, the current downturn may eventually bring prices down slightly, or it "could merely involve only a prolonged period of slower price growth." One factor that could put addi - tional downward pressure on prices is consumer sentiment. Trulia re- ported the share of consumers who say this year will be a better year for home sellers than for homebuy- ers is beginning to decline. When outlook leads to action, the market can be impacted. "Housing market shifts have an element of self-fulfilling prophecy: if enough people believe prices are peaking then sellers hurry, buy - ers hold off, and prices fall," the economists explained. In the near term, buyers can expect a little more negotiating power and sellers slightly less. Prices will likely continue to rise this spring, and affordability will remain an issue in many markets for now, Trulia predicted.

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