Hot real estate market at a turning point, according to Corelogic

Rising mortgage rates will slow the housing market, but it was already near a turning point, new analysis from Corelogic reveals.

House prices continued to rise, but the real estate research company’s second-quarter market update showed price growth had slowed in recent months.

Price growth fell from 3.1% per month in April to 2.2% in May, then to 1.8% in June.

Corelogic’s chief real estate economist Kelvin Davidson said he sees signs of cooling in the market after a warm start to the season in 2021.

Sales activity has slowed down, but the lack of registrations is playing a role.

Abigail Dougherty / Stuff

Sales activity has slowed down, but the lack of registrations is playing a role.

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Sales volumes had slowed slightly and were now at about the same levels as in 2019, with 2020 not being a fair comparison, he said.

“Our data on bank-ordered appraisals, which is an early indicator of borrowers applying for loans, suggests that there has been a decline in demand and that this may start to trickle down to actual sales.

“This shouldn’t come as a surprise, especially since a number of agreements have reportedly already been canceled later in the year to surpass more stringent loan-to-deposit requirements.”

Corelogic expected the market to slow due to accessibility pressures, the reinstatement of LVRs in March and government tax changes for investors.

Davidson said it’s not just about demand, but also supply, and the continued lack of listings has a big role to play in reducing sales activity.

But rising mortgage interest rates over the past week would be another influencing factor in the real estate landscape, he said.

“For those still trying to buy their first home, interest rate increases will raise the bar on entry.

“And those who have entered the market since 2014, the last time OCR increased, have only experienced low interest rates. So the increases will come as a shock to many who have recently bought with a heavy mortgage. “

An increase in the official spot rate, which some economists had adopted later this year, would have a dampening effect on the market.

Davidson said these factors reinforced his view that sales activity and price growth were near or at a peak and that both are likely to subside over the next few months.

Additionally, while the government’s new tax policies have yet to have a significant impact, it would happen when the ability to claim interest deductions is phased out for current owners, he said.

“Once you start to see price growth clearly slowing down, the inevitable question is where it will end and where will prices actually start to fall.

CoreLogic's chief real estate economist Kelvin Davidson doesn't expect prices to drop across the board, just a slower market.

Provided

CoreLogic’s chief real estate economist Kelvin Davidson doesn’t expect prices to drop across the board, just a slower market.

“But we don’t expect widespread price declines as unemployment is low and there is no sign of a credit crunch at GFC. We believe that growth will simply slow at the national level, although some regions may see prices drop. “

The CoreLogic report also showed that there had been a marked reduction in the buying market share for mortgaged investors.

Their share of purchases fell from 29 percent in the first quarter of the year to 25 percent in the second quarter, and it was the lowest share in about a year.

There had also been an increase in the number of first-time home buyers on the market, with their purchase share rising from 21 percent earlier in the year to 24 percent in the second quarter.

The share of first-time homebuyers in home purchases has increased.

Stock Photo / Western Leader

The share of first-time homebuyers in home purchases has increased.

Davidson said the government’s incentive for new construction for investors may not have been ideal from a first-time homebuyer’s perspective because they have traditionally been very interested in new construction.

“As the market cools over the next few months and into 2022, we should see a return to ‘normalcy’ for sales activity and price growth.

“And the pressures on future homebuyers, in terms of trying to save enough to keep their deposit up to market, will not be so intense.”

Penny D. Jackson