Is the Housing Market Showing Signs of Winding Down?

April 12th, 2022  / Author: Cesar Gomez
News

According to Fannie Mae’s monthly survey on Home Purchase Sentiment, people were 2.1 points less likely to buy a property in March than they were in February. Redfin’s data show a price drop in 12% of homes for sale nationwide. These may be the first signs of the housing market’s change, caused by the rising interest rates.

It is not a secret that the world of real estate has been unhinged for the last two years - from record-high numbers of bidding wars to numerous cases of blind-bought houses. Well, it seems like the end of that frenzy might be coming, and according to Fannie Mae’s survey on homebuying optimism, the first indicators are visible in the data from March.

Fannie Mae is a government-sponsored enterprise that securitizes loans by buying them from large banks and selling them in packages to investors. This company does a survey every month to investigate and track how borrowers feel about market trends. Data from March shows a significant increase in overall pessimism regarding future real estate investment.

Consumers were not happy with the conditions, so much so that 73% stated that it is a bad time to buy a home and that they expect the mortgage rate to rise in the next few months. And the consumers are rightfully concerned because the 30-years-fixed stays just shy away from 5%, the highest since 2018.

Redfin’s reports also show signs of slowing down, with 12% of all home sellers decreasing their asking price. Additionally, home tour numbers show a decrease of 3% compared to March 2021. This level of decrease hasn’t been seen since December, and it is a significant indicator of the state of the market.

To clarify, December may be the slowest month in the real estate world - the holiday season and cold weather slow down house touring and purchasing. On the other hand, March and April mark the spring season - a period when the market should be booming.

The fact that it is not booming, but rather slowly deflating is an indication that sellers are not having as much power as they used to. Nevertheless, this is still far away from what we could call the “buyers’ market”, as active listings fell 22% and supply is still record-low.

There are a lot of uncertainties in the market right now, caused both by the macroeconomic factors and the market trends. However, the signs of a relaxed market do not have to be symptoms of a future crash, as there is still a major unbalance between demand and supply. People are still eager to buy a house, although less and less.

If consumers become pessimistic and the interest rate affects the job market, then it would be time to worry about a market crash. High unemployment could lead to foreclosures, which could oversaturate the market. That could create a housing bubble, with so many empty homes and no one to buy them.

For now, the unemployment rate is below 4%, supply is not catching up with high demand, and millennials and gen Zs are entering the market ready to settle down. Consequently, the housing market is still going strong, but there may be early indicators of it slowing down.

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