After more than a year of sky-high demand, exploding house prices and rising real estate sales, it finally looks like the market is cooling down.
“The housing market is not crashing, but it is experiencing a hangover when it comes down from an unsustainable high,” said Taylor Marr, Redfin’s deputy chief economist.
In a Fannie Mae survey of homebuyer sentiment, a record 79% of respondents said it was a bad time to buy a home.
“While many home sellers are already lowering prices, more homeowners are likely to decide to stay put now that the mortgage rate on a new home is significantly higher than their current one,” Marr said.
Although the market is still very strong by historical standards, here are five reasons to believe that the tide is turning.
1[ads1]. The stock of homes for sale is growing
With the demand for homes exceeding supply, the stock of homes for sale had been consistently declining from year to year during the pandemic housing boom, said Danielle Hale, chief economist at Realtor.com. “We were talking about low inventory in 2019, and it was getting worse.”
But in May, the inventory began to move in a different direction, according to Realtor.com data, and the last week active listings saw up 13% from last year.
“Seeing the number of homes increase is good news for buyers,” Hale said. “The trend is changing and they are seeing more homes. It should help balance the market, slow down house price growth and increase market time.”
In addition to the fact that the high costs are pushing potential buyers out of the market, part of the reason is there are several listings is that more homeowners decide to sell, Hale said. More new listings hit the market in May than any other month since June 2019, according to Realtor.com.
“But house prices show a lot of sticking power,” Hale said. “Inflation is going to slow down, but I expect prices to stay high. If home sellers can’t get the price they want, they probably won’t put it on the market.”
2. More price cuts
If you’ve been looking at homes, you may notice something you haven’t seen in a long time: price cuts.
For a while, homes sold so quickly, and often with bidding wars, that sellers usually got more than they asked for. But as reasonableness challenges push buyers and there is less competition to buy, some sellers decide to lower the price.
Price cuts were seen in 10.5% of homes in May, up from 6.2% in May 2021, according to Realtor.com.
But that does not mean that there are settlement sales on houses.
“The share of homes with price reductions is higher now, but May’s share is still lower than every May back in 2017,” Hale said. “It’s less competitive than last year, but it’s still quite competitive.”
3. Real estate companies lay off people
This week, Redfin said they cut about 8% of employees, and Compass said they would reduce the workforce by 10%.
Demand for Redfin’s services in May was 17% below expectations, said Redfin CEO Glenn Kelman. As a result, the company does not generate enough work for agents and support staff.
“Today’s layoffs are a result of shortcomings in Redfin’s revenue, not in people being released,” he said.
At Compass, 450 of the 4,500 employees will be cut, “due to the clear signals of declining economic growth”, according to a statement from the company.
4. Mortgage applications are down
As mortgage rates have risen, potential home buyers are applying for fewer loans.
In the week ending June 10, mortgage applications were down 16% from the previous year, according to the Mortgage Bankers Association.
“Purchase applications were down compared to last year, as ongoing inventory shortages and plausibility challenges have cooled demand, along with the rapid jump in mortgage rates,” said Joel Kan, MBA’s deputy vice president of economic and industrial forecasting.
With mortgage rates well above 5%, the refinancing activity that was on fire when interest rates were at the bottom during the pandemic has dried up, and was more than 70% lower than last year.
Fewer people buy homes
With prices so high and mortgage rates still rising, it seems that fewer people are buying homes right now.
An index from Redfin that assesses the demand for home buyers – by measuring the requests for home tours and other home purchase services from Redfin agents – fell 14% from year to year during the week ending 12 June. This was the ninth in a row. week with a decline in the index.
“Were it not for the rise in mortgage rates, the housing market would still be in a boom right now,” said James Cappello, a Redfin agent in the Bay Area. “Demand from home buyers remained extremely high as recently as February, but prices are making it very tough. Going from 3% to almost 6% has almost immediately scared many people out of the market.”