How Cycles Are Running in the Housing Sale Market

The housing market has seen the burning-candles-at-both-ends phase. The median sales price for houses in the UL at the end of 2020 Q1 was $322,600. A year later, the median price was up to $449,300, an increase of 39.3% in two years.

Everyone knows this basically can’t go on forever. Prices have to come down, but how much, where, and over what period of time/? The drop from the end of 2006 to the end of 2008 dropped by 19% from $257,400 to $208,400.

There’s no apparent massive wave of foreclosures to flood markets with so much supply that it would kick the legs out from the stool. The Federal Reserve has been shrinking its balance sheet by walking away from supporting the mortgaged-backed securities market, which pushes up yields on those securities and then the mortgages underlying them.

But talking about the “average” median price or overall increases or drops in prices becomes a statistical haze that doesn’t necessarily mean anything practical.

John Burns Real Estate Consulting took a crack at what it’s calling the current housing cycle landscape, saying that the markets really come to a housing cycle—growing, plateauing, slowing, falling, bottoming, recovering, and around again—that is in different phases across the country.

Those, like Atlanta, Charlotte, Indianapolis, Orlando, Tampa, Miami, and New York “have seen significant capital investment over the past 12–24 months and are now faced with limited volume growth and decelerating home price appreciation, leading to shrinking capital returns, or underwriting becoming extremely aggressive in order for deals to pencil,” the firm says. They’re coming up to the peak and about to tip over.

Some slowing markets are Boston, Dallas, Houston, Jacksonville, Orange County, Philadelphia, San Diego, Seattle, and Washington, DC. They “face alarming affordability levels, decelerating (or even declining) home price appreciation, and rapidly slowing sales—making capital investments less attractive,” says John Burns. “Several of these slowing markets were among the first to recover from the initial COVID panic in April 2020.”

Then there are the falling markets—Austin, Chicago, Denver, Los Angeles, Las Vegas, Minneapolis, Sacramento, Salt Lake-Provo, San Francisco, and San Antonio. “Several major markets have now reached the falling phase of the cycle, characterized by flat or declining prices, limited capital investment, and shrinking housing demand,” the firm notes.

Depending on the specific part of the cycle, high mortgage rates and uncertainty in labor markets and general economic environments have different effects. The steps any investor or owner might need to take will depend greatly on where they are, in the country and the greater cycle.