The crazy housing market is finally slowing down
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Homebuyers face a lot of competition. Photo: Raychel Brightman/Newsday RM via Getty Images
The red-hot housing market is starting to cool this spring, after nearly two years of soaring prices and shrinking inventories.
Why it matters: Homebuyers and renters who've been struggling to find an affordable place to live will have more choices and fewer bidding wars — if only just a little.
- Rising interest rates, inflation and the stock market drop are countervailing factors, keeping the housing market unaffordable to many.
What's happening: The supply of homes for sale is finally increasing, after being depleted over the past year and a half, Zillow reports.
- There were 740,000 homes for sale in the U.S. at the end of April, up from 715,833 at the end of March, per Zillow. That's still about half pre-pandemic levels in April 2019.
- It's not just a seasonal uptick, either. Inventories are rising enough to begin closing the gap with 2021's available homes, and should surpass last year's inventory sometime later in 2022, Zillow says.
More houses for sale should help slow the frenetic pace of the U.S. market, in which the median home was snatched up in just six days in April.
- That head-snapping sales rate is "extraordinary — unlike anything we've seen before in the national housing market," Jeff Tucker, senior economist at Zillow, the real estate website, tells Axios.
New home construction has also bolstered the housing supply, says Lawrence Yun, chief economist for the National Association of Realtors.
- Yet persistent inflation — plus external factors, like the war in Ukraine — will continue to cause strain for potential buyers, he said.
The big picture: The dynamics of the housing market are shifting in many ways, with rising mortgage rates becoming a factor for the first time in a while.
- The monthly mortgage payment on the median-asking-price home — which has risen to $408,458 — has hit a record high of $2,404 at the current 5.27% mortgage rate, per Redfin.
- That's 42% higher than the $1,688 monthly payment a year earlier, when mortgage rates were 2.96%.
- “Homebuyers continue to be squeezed in nearly every way possible, which is causing some to take a step back from the market,” says Redfin chief economist Daryl Fairweather in a company blog post.
Between the lines: As inventories rise, prices soften. Redfin reports 15% of home sellers cut their asking price last month — up from 9% a year ago.
- "Even though price drops are becoming more common, most homes are still selling above asking price and in record time," notes Fairweather.
Be smart: The cooldown is not a sign of a housing crash — just an indication that we're going to return to a more balanced market, says Tucker of Zillow.
- And while prices aren't expected to start falling fast, at least they won't be climbing quite as quickly anymore.
What to watch: Some overheated markets — like Charlotte, North Carolina, and Phoenix — could see a price correction over the coming year, Moody's Analytics chief economist Mark Zandi tells Fortune.
The bottom line: It'll probably be a year or two before housing demand and supply are back in equilibrium, says Tucker.
