U.S. Housing Market Waves a Big Red Flag You May Have Missed

  • The share of U.S. homes seeing a price drop has been on the rise.
  • Despite short supply, sellers are being forced to lower prices.
  • Higher mortgage rates and weak economic growth will hurt the market’s momentum.

The U.S. housing market gave out a positive sign earlier this week when it emerged that starts for the month of October improved sharply.

There was a nice bump in key housing metrics – starts, building permits, and even completions – indicating that the market continues to remain in great health despite tepid economic growth and slow wage increments. But a closer look at the inner developments indicates that all is not well with the U.S. housing market.

A big problem with the U.S. housing market

According to data from real estate brokerage firm Redfin, there has been a consistent jump in the proportion of sellers who have reduced the price of their homes to attract buyers.

Share of home price drops
Share of homes with price drops in the U.S. has been on the rise this year. | Source: Redfin

In December 2018, there were just 15.6% of homes with price drops. Cut to October 2019 and the share of homes with a price drop has nearly doubled to 29.1%. This is an indication that the U.S. housing market might be cooling off.

That’s because sellers have been forced to reduce prices despite a shortage of home supply. Redfin data indicates that the supply of homes on the market has dropped from 4.5 months back in January this year to just three months in October. This is a clear indication that sellers are finding it difficult to attract buyers and are reducing prices in a bid to move inventory.

Home supply chart
The supply of homes has been dwindling in the U.S. housing market. | Source: Redfin

Not surprisingly, the sales price of new homes in the U.S. was down 1.5% annually to a median level of $370,300 in the third quarter of the year. Redfin reports that this was the third consecutive quarter of median price decline of new homes, and was the biggest drop seen in the past seven years.

The price drop has taken…

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