The Housing Market Is Finally Showing Signs of Slowing Down

May 24th, 2022  / Author: Cesar Gomez
News

After two and a half years of a steaming hot market, there are signs of a slow-down caused by record-high inflation and interest rates. Some real estate reports show both a demand decrease and a slight supply increase, which could give a break to potential homebuyers. The indicators are giving hope to many aspiring homeowners, who are still able to afford to buy a property even with today’s rates.

The situation is far away from being a buyer’s market, but it is closer than it was in the past two and a half years. Not only have new listings risen, but there are fewer interested buyers. However, the prices are still rising, and the amount of time a property spends on the market is at a record low - only 15 days.

Inventory Shortage Shrinked

Although we cannot say that there is a drastic influx of supply to the US housing market, there are signs of progress. The number of homes for sale is going down constantly, but it is shrinking much slower than it was during the pandemic-caused housing frenzy.

The biggest indicator of inventory relief is the fact that April 2022 saw the smallest year-over-year fall in houses for sale with 9% fewer homes than in April 2021. This percentage was a double-digit number before inflation priced some people out of homeowning. Additionally, new listings climbed 15% from the beginning of March until now.

How Are the Sellers Handling the Changing Market?

Some sellers are settling high asking prices, expecting the buyers to grab their properties, not regarding the 5.25% rate on a 30-year-fixed or the general increase in living costs. Potential homebuyers are getting demotivated, so home sales fell 8% compared to April 2021. The home sale drop caused the median home price to climb much slower than it did before.

Other sellers are aware of the conditions on the market and are dropping prices accordingly. Out of all homes on the market, more than 17% of them saw a price decrease in the last month. However, the median home price still did rise and it surpassed $390,000, which is a 16% year-over-year increase.

This price, with the mortgage rate far above 5%, explains the record-high monthly mortgage payment, with an average borrower paying almost $2,500 a month just for a loan. The homeowners who locked in April 2021 are paying 43% less for a monthly mortgage installment.

Overall Demand Decrease

As we stated before, people are leaving the market demotivated by the prices and the rates. However, Redfin’s report shows fewer people even entering the market, which could indicate a significant cool-off during the summer. Demand drop is demonstrated by a few factors, the first one being an 11% YOY drop in Google house searches.

There is an 8% drop in demand reported by the Redfin agents across the country, and 25% less touring activity than during the same time last year. An expected drop is noticeable in mortgage application numbers, which fell to the lowest number since March 2020. The last time demand fell this significantly was in April 2020, due to the pandemic-driven uncertainty.

From the data we possess right now, it is easy to predict a slower summer market. However, the unpredictability of the macroeconomic situation is high, and any real estate prediction should be taken with a grain of salt. What we gather is this: the prices will rise - but slower, and the mortgage rates will go above 5.5% with the Fed’s interest rate increases.

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