After more than a year of rising demand, the boom in house prices and rising real estate sales, the market finally seems to be cooling.
“The housing market isn’t crashing, but it’s experiencing a hangover as it drops from an unsustainable high,” said Taylor Marr, chief economist at Redfin.
In a Fannie Mae poll on homebuyer sentiment, a record 79% of respondents said it was a bad time to buy a home.
“While many homeowners are already lowering their prices, more homeowners are likely to decide to stay now that the mortgage rate on a new home is significantly higher than their current one,” Marr said. .
While the market is still very strong by historical standards, here are five reasons to believe that the tide is changing.
1. The inventory of homes for sale is growing
With housing demand outstripping supply, the inventory of homes for sale had been steadily declining year after year during the pandemic housing boom, said Danielle Hale, chief economist at Realtor.com. “We were talking about a low inventory in 2019 and it was getting worse.”
But in May, inventory began to move in a different direction, according to Realtor.com data, and the most recent week saw active listings increase 13% from last year.
“Seeing the number of homes increase is great 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 time in the market.”
In addition to the high costs that make potential buyers off the market, part of the reason there are more listings is that more homeowners decide to sell, Hale said. More new listings entered the market in May than in any other month since June 2019, according to Realtor.com.
“But housing prices show great grip power,” Hale said. “Price growth will slow, but I hope prices stay high. If homeowners 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 have noticed something you haven’t seen in a long time: price cuts.
For a time, homes were sold so quickly, and often with supply wars, that sellers usually got more than they asked for. But as accessibility challenges squeeze buyers and there is less competition to buy, some sellers decide to lower their price.
According to Realtor.com, price cuts were observed in 10.5% of households in May, compared to 6.2% in May 2021.
But this does not mean that there is a sale of liquidation of houses.
“The proportion of homes with price reductions is higher now, but the May share is still lower than all May since 2017,” Hale said. “It’s less competitive than last year, but it’s still quite competitive.”
3. Real estate agents are firing people
With less activity in the housing market, real estate companies are announcing layoffs.
This week Redfin said it would reduce its employees by about 8% and Compass said it would reduce its workforce by 10%.
Demand for Redfin services in May was 17% below expectations, said Glenn Kelman, CEO of Redfin. As a result, the company is not generating enough jobs for agents and support staff.
“Today’s dismissal is the result of a deficit in Redfin’s revenue, not the abandonment of the people,” he said.
At Compass, 450 of its 4,500 employees will be laid off, “due to clear signs of slowing economic growth,” according to a company statement.
These cuts follow other contractions in the real estate sector as the housing market has begun to smoke.
4. Mortgage applications have gone down
As mortgage rates have risen, potential home buyers are applying for fewer loans.
In the week ending June 10, mortgage purchase applications were down 16% from the previous year, according to the Association of Mortgage Bankers.
“Purchase requests were down compared to last year as inventory shortages and affordability challenges have cooled demand, coinciding with the rapid jump in mortgage rates,” he said. Joel Kan, Associate Vice President of Economic Forecasting and MBA Industry.
With mortgage rates well above 5%, the refinancing activity that was on fire when rates were at the bottom during the pandemic has dried up, falling more than 70% from last year .
5. Fewer people buy a house
With prices so high and mortgage rates still rising, it looks like fewer people are buying homes right now.
A Redfin index assessing homebuyer demand, measuring requests for home visits and other home buying services from Redfin agents, fell 14% year-over-year during the week ending 12 June. This was the ninth in a row. week of index falls.
“Were it not for the rise in mortgage rates, the real estate market would still be booming,” said James Cappello, a Redfin agent in the Bay Area. “Demand from home buyers was still extremely high until February, but rates are making it very difficult. Going from 3% to almost 6% almost instantly has scared a lot of people out of the market.”