After more than a year of growing demand, a rise in house prices and rising real estate sales, the market is finally looking cool.
“The housing market is not collapsing, but it is a hangover as it comes down from an unsustainably high level,” said Taylor Marr, Redfin’s deputy chief economist.
In a survey by Fannie Mae on the mood of home buyers, a record 79% of respondents said it was a bad time to buy a home.
“While many home sellers are already cutting prices, more homeowners are likely to choose to stay in place 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 reversing.
1. The inventory of homes for sale is growing
As demand for housing outpaces supply, the stock of homes for sale has been steadily declining from the previous year during the housing pandemic boom, said Daniel Hale, chief economist at Realtor.com. “We talked about low stocks in 2019 and it was getting worse.”
But in May, the inventory began to move in a different direction, according to Realtor.com, and in the last week, active ads increased by 13% over last year.
“Seeing an increase in housing is great news for buyers,” Hale said. “This is reversing the trend and they are seeing more homes. This should help balance the market, slow the rise in house prices and increase market time.”
In addition to the high costs of pushing prospective buyers out of the market, part of the reason there are more ads is that more and more homeowners are choosing to sell, Hale said. More new ads entered the market in May than every other month since June 2019, according to Realtor.com.
“But housing prices are showing a lot of stickiness,” Hale said. “Price growth will slow, but I expect prices to remain high. If home sellers can’t get the price they want, they probably won’t put it on the market.”
2. More price reductions
If you’ve been looking at homes, you may notice something you haven’t seen in a long time: lower prices.
For a time, homes sold so quickly and often with bidding wars that sellers usually got more than they wanted. But because the challenges of affordability put pressure on buyers and there is less competition to buy, some sellers have decided to lower their price.
A decrease in prices was observed in 10.5% of homes in May, compared to 6.2% in May 2021, according to Realtor.com.
But this does not mean that there is a liquidation sale of houses.
“The share of housing prices is now higher, but May’s share is still lower than every May of 2017,” Hale said. “It’s less competitive than last year, but it’s still quite competitive.”
3. Real estate companies lay off people
With less activity in the housing market, real estate companies are announcing layoffs.
This week, Redfin said it was cutting about 8 percent of its staff, and Compass said it would cut its workforce by 10 percent.
Demand for Redfin 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 dismissal is the result of Redfin’s lack of revenue, not the layoffs,” he said.
At Compass, 450 of its 4,500 employees will be laid off, “due to clear signals of slowing economic growth,” according to a company statement.
These layoffs follow other contractions in the real estate industry as the hot housing market begins to smolder.
4. Mortgage applications are not
As mortgage rates have risen, prospective homebuyers are applying for fewer loans.
In the week ending June 10, mortgage applications fell 16 percent from a year earlier, according to the Mortgage Bankers Association.
“Purchase orders have declined since last year as continuing inventory shortages and affordability challenges have dampened demand, coinciding with a rapid rise in mortgage interest rates,” said Joel Kahn, associate vice president of economic and industrial forecasting at MBA.
With mortgage rates well above 5%, the refinancing business, which was on fire when interest rates were at the bottom during the pandemic, has dried up, falling more than 70% lower than last year.
5. Fewer people shop for homes
Because prices are so high and mortgage rates continue to rise, fewer people seem to be buying homes right now.
The Redfin index, which measures the demand of home buyers – by measuring requests for home tours and other services for buying homes from Redfin agents – fell 14% year on year in the week ending June 12. This was the ninth consecutive week of decline in the index.
“Were it not for the rise in mortgage interest rates, the housing market would still be booming right now,” said James Capello, a Redfin agent in the Gulf region. “Demand from home buyers was still extremely high in February, but the percentages make it really difficult. The transition from 3% to almost 6% scared many people in the market almost instantly. “
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