Confused about the housing market? Here’s what happens

A “For Sale” sign is seen outside a home in New York.

Shannon Stapleton | Reuters

The decline in the otherwise red-hot housing boom has been astonishingly fast.

The US housing market surged during the pandemic as housebound people sought new places to live, boosted by record low interest rates.

Now, real estate agents who once reported lines of buyers outside open houses and bidding wars on the back deck say homes are sitting longer and sellers are being forced to lower their gaze.

It makes both potential buyers and sellers wonder where they stand.

“As recession worries weigh on consumers̵[ads1]7; outlook, our survey shows that uncertainty has entered the minds of many buyers,” said Danielle Hale, chief economist at

Here are the main factors behind the hectic housing market.

Mortgage interest

The main reason for the decline is rising mortgage interest rates. The average interest rate on the 30-year fixed mortgage, which is by far the most popular product today and accounts for more than 90% of all mortgage applications, started this year at around 3%. It is now just over 6%, according to Mortgage News Daily.

That means a person buying a $400,000 house will have a monthly payment about $700 higher now than it would have been in January.

High prices, low offers

The other drivers of the decline are high prices and low supply.

Prices are now 43% higher than they were at the start of the coronavirus pandemic, according to the S&P Case-Shiller National Home Price Index. The supply of homes for sale is growing, up 27% at the start of September compared to the same time a year ago, according to While that comparison seems large, it’s still not enough to offset the years-long shortage of homes for sale.

Active inventory is still 43% lower than it was in 2019. New listings were also down 6% at the end of September, meaning potential sellers are now worried as they see more houses sitting on the market longer.

Confused about the housing market?  Here’s what happens

Paul Legere is a buyer’s agent with the Joel Nelson Group in Washington, DC. He focuses on the competitive Capitol Hill area, and he said he saw listings jump by 20 to 171 just after Labor Day. He now calls the market “inflated”. In comparison, only 65 homes were put up for sale in March.

“This is a very traditional post-Labor Day inventory, and seeing in a week or so how the market absorbs the new inventory is going to be very telling,” he said. “Very.”

Inventory is taking a hit nationally as homebuilders slow production due to fewer potential buyers touring their models. Housing starts for single-family homes fell 18.5% in July compared to July 2021, according to the US Census.

Homebuilder sentiment in the single-family market fell into negative territory in August for the first time since a brief dip at the start of the pandemic, according to the National Association of Home Builders. Builders reported lower sales and weaker buyer traffic.

“Tighter monetary policy by the Federal Reserve and persistently high construction costs have led to a housing recession,” NAHB Chief Economist Robert Dietz said in the August report.

Some buyers are sticking around

However, the buyers have not disappeared completely, despite the still expensive market for sales and the equally expensive rental market.

“Data indicates that some home buyers are finding silver linings in the form of cooling competition for the growing number of home options for sale,” said’s Hale. “Especially for buyers who get creative, for example by exploring smaller markets, this fall can provide relatively better chances of finding a home within budget.”

We may be looking at falling housing prices nationally, says Yale's Robert Shiller

House prices are finally starting to cool down. They fell 0.77% from June to July, the first monthly drop in nearly three years, according to Black Knight, a provider of mortgage technology and data.

While the drop may seem small, it is the largest one-month decline in prices since January 2011. It is also the second-worst July performance dating back to 1991, behind the 0.9% decline in July 2010, during the Great the recession.

Affordability issues

Yet this price drop will do very little to ameliorate the affordability crisis caused by rising mortgage rates. While prices fell back slightly in August, they have risen sharply again this week, making for the least affordable week in housing in 35 years.

It currently takes 35.51% of the median income to pay the monthly principal and interest payment on the median home with a 30-year mortgage and 20% down. That’s up marginally from the previous 35-year high back in June, when the payout-to-earnings ratio hit 35.49%, according to Andy Walden, vice president of corporate research and strategy at Black Knight.

In the five years before interest rates began to rise, this income-to-payment ratio remained stable at around 20%. Although house prices rose sharply in 2020 and 2021, record low interest rates offset the increases.

“Given the large role affordability challenges appear to play in changing housing market dynamics, the recent decline in home prices is likely to continue,” Walden said.

Housing market slows as mortgage rates hit 6.25%

A new report from real estate firm Redfin showed that while homebuyer demand woke up a bit in August, the latest rise in mortgage rates over the past week put it back to sleep. Fewer people searched for “houses for sale” on Google with searches during the week ending Sept. 3 — down 25% from a year earlier, according to the report.

Redfin’s Demand Index, which measures requests for home tours and other home-buying services from Redfin agents, showed demand in the seven days ending Sept. 4 was up 18% from the 2022 low in June, but still down 11% year over year.

“The housing market always cools down at this time of year,” said Daryl Fairweather, Redfin’s chief economist, “but this year I expect the fall and winter to be particularly frigid as sales dry up more than usual.”

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