US Housing Market Is Slowing Down, Inventory Is High And Prices Are Lowering

The US housing market has been on quite the roller coaster ride since the beginning of the Covid-19 pandemic. Now, experts are saying that the housing market may not be crashing, but it’s definitely slowing down in terms of sales, mortgage rates, and inventory. 

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“The housing market isn’t crashing, but it is experiencing a hangover as it comes down from an unsustainable high,” said Taylor Marr, Redfin deputy chief economist. The US housing market is currently experiencing increased mortgage rates, which have risen by more than 2.5% this year, and the higher costs of financing a home have caused a lot of buyers to opt out of investing in real estate. 

In a Fannie Mae survey on homebuyer sentiment, a record “79% of respondents said it’s a bad time to buy a home.”

“While a lot of home sellers are already dropping their prices, more homeowners will likely decide to stay put now that the mortgage rate on a new home is significantly higher than their current one,” said Marr.

Danielle Hale, a chief economist at Realtor.com, spoke about the inequality between the increased inventory of homes and the decreased demand from buyers to invest in them. 

“The inventory of homes for sale has been consistently declining year-over-year during the pandemic housing boom. So now, seeing the number of homes increase is great news for buyers. It shifts the trend and they are seeing more homes. It should help balance the market, slowing down home price growth and increasing the time on the market.”

“In addition to the high costs pushing prospective buyers out of the market, part of the reason there are more listings is that more homeowners are deciding to sell. More new listings entered the market in May than any other month since June 2019,” Hale said. 

“But home prices are showing a lot of sticking power. Price growth is going to slow, but I expect prices to stay high. If home sellers can’t get the price they want, they are likely to not put it on the market,” she stated. Additionally, as affordability becomes an issue for more Americans, sellers are choosing to cut the prices of their properties. 

According to data from Realtor.com, price cuts were seen in 10.5% of homes in May 2022, which is up from 6.2% when compared to May 2021. “The share of homes with price reductions is higher now, but May’s share is still lower than every May going back to 2017. It is less competitive than last year, but it is still pretty competitive,” Hale said. 

An increase in mortgage rates is, however, discouraging a lot of potential homeowners from buying, according to Joel Kan, the associate vice president of economic and industry forecasting at the Mortgage Bankers Association.

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“In the week ending June 10, mortgage purchase applications were down 16% from a year earlier. Purchase applications were down compared to last year, as ongoing inventory shortages and affordability challenges have cooled demand, coinciding with the rapid jump in mortgage rates.”

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Mortgage rates are currently averaging at well above 5%, and refinancing activity is at a low. Additionally, the real estate industry itself is experiencing a major surge of layoffs due to inactivity. 

Well-known real estate site Redfin announced that it was curing 8% of its employees, and Compass followed suit, announcing they would be cutting their workforce by 10%. 

According to Redfin CEO Glenn Kelman, demand for the company’s services in May were 17% below expectations, leaving employers with an excess of agents and support staff and not enough work to give to them. At Compass, 450 out of 4,500 employees are projected to be cut due to lack of activity as well. 

The combination of all of these elements have left buyers uninterested in investing in real estate. High prices and mortgage rates are deterring potential buyers from certain properties. Last week marked the ninth consecutive week that Redfin recorded a decrease in homebuyer demand. 

“If it weren’t for the surge in mortgage rates, the housing market would still be in a boom right now,” said James Cappello, a Redfin agent in the Bay Area.

“Demand from homebuyers was still extremely high as recently as February, but rates are making it really tough. Going from 3% to nearly 6% almost instantly has scared a lot of people out of the market.”