4 signs that the boiling real estate market is finally starting to cool down

Tthe housing market this year has been high stakes. Prices skyrocketed, bidding wars were rampant, and thanks to remote working, demand was strong in virtually every market in the United States. It was a difficult landscape for buyers, to say the least.

But just as the weather has started to cool (a welcome reprieve here in Texas), it looks like the accommodation has started to cool as well.

To be clear: that doesn’t mean a buyer’s market is in the cards – and there’s no indication that prices will start falling anytime soon. What the data indicates, however, is a slightly more manageable market that buyers have seen so far this year.

“The housing market has cooled completely from last winter and spring,” said Greg Aponte, head of business intelligence and data science at the Orchard real estate platform. “It’s not completely cool – just cooler than it once was.”

What does it mean if you plan to buy a home this winter or in 2022? Here is what you can expect.

1. Slower appreciation in house prices

Home prices have increased at breakneck speed over the past year. In April, data from Realtor.com showed that prices for active real estate listings were up 17.2% from the previous year. In October, that bump shrank considerably, falling to just 8.6%.

Fortunately, experts predict that the slowdown in growth will continue as we approach 2022. According to data company CoreLogic, annual price growth is expected to slow to 2% by next September. Other organizations, including mortgage buyer Freddie Mac and the Mortgage Bankers Association, forecast total price increases in 2022 in the range of 5% to 7%.

“When you look at these numbers, it’s easy to tell it’s getting colder, but it just indicates that we are heading towards a much healthier housing market,” says Marcus Larrea, associate broker at Palm Paradise Real Estate in Florida. “A healthy and balanced market generally appreciates around 3% each year. “

Another good sign is that price drops – or the number of active listings seeing price cuts before they sell – have increased over the past three months. The share of listings with price cuts is now at 2016 levels, according to data from Realtor.com.

2. More affordable ads

Startup announcements saw a much-needed increase in the second half of this year, and according to real estate broker Redfin, new listings in the “most affordable” category – those with the median price of $ 126,500 – rose 32% between third quarter of 2020 and that of 2021. Those in the “affordable” category, with a median price of $ 210,000, increased by 16%.

Much of this, according to Redfin’s analysis, is linked to the end of mortgage forbearance plans for many homeowners. Forbearance was an option available to distressed homeowners under the CARES Act, allowing some to suspend mortgage payments due to pandemic hardship for up to 18 months. As these options expire, homeowners who are still struggling financially are putting their homes up for sale to pay off their mortgage.

Again, there is a caveat here, and while the increase in listings is certainly helpful to potential buyers, the market is still incredibly low on housing supply overall. In fact, Freddie Mac estimates that the United States is under-supplied by nearly 4 million homes.

As Andreis Bergeron, head of brokerage operations at real estate technology firm Awning, says, “We still have several years before the supply is able to meet the demand for buying a home.”

3. Fewer bidding wars

At one point this year, nearly three in four buyers were against other offers. In October? This share fell to just 59% – a low in 2021.

While this is still above 2020 (and pre-pandemic) levels, it is a marked improvement from just a few months ago, and it could help consumers buy a house without resorting to aggressive tactics – such as waiver home inspection contingencies and bid well no more asking.

“Most areas of the country have seen a decline in the number of homes receiving multiple offers well above the list price,” said Glenn Phillips, CEO of Lake Homes Realty. “This behavior hasn’t ended – it’s just not as common, and aggressive auctions are more restricted now.”

According to data from real estate technology company OJO Labs, only 41% of homes sold for more than the list price last month. In July, the share was 50%.

Another indicator of a slight easing of competition? Mortgage application volume is approaching its lowest level since January 2020, and pending sales – or the number of homes under contract – have also fallen in recent months. Both point to a decline in buyers, at least for now.

“Home sales tend to slow down during the holidays, so over the next couple of months we can probably expect less competition among buyers,” said Robert Heck, vice president of mortgages in the mortgage market. online Morty.

4. More days on the market

Selling a typical house takes longer than at the start of the year. According to Realtor.com, the average number of days in the market has increased steadily since June, reaching 45 days in October. This longer time to sell indicates a cooler market and, in many cases, an opportunity for hopeful homebuyers.

“If you see more ‘for sale’ signs in your neighborhood and they don’t disappear overnight, that’s a sign that the seller’s market is starting to slow down,” says Kerry Melcher, real estate manager. at Opendoor. “Be careful when you start to notice sales signs lying around for more than a few days without a ‘sold’ sign. “

As with the other signs of cooling, however, this is not a mark of easy buying conditions. While homes are staying on the market longer than they were a few months ago, they are still selling faster than historical standards. In fact, homes sold faster last month than any other October in recent history.

“From a supply-demand balance perspective, the market is still quite warm,” said Parker Ross, chief global economist at Arch Capital Service Mortgage Group. “The share of homes exiting the market within two weeks remains above even 2020 levels, indicating that there is still a lot of excess demand.”

Yet don’t expect a buyer’s market

Long and Short: Despite all of these positive signs, the market is still quite warm – and a full turnaround is not on the horizon anytime soon.

“We are seeing that the market is starting to stabilize while remaining a seller’s market,” said Dottie Herman, vice president of Douglas Elliman Real Estate.

Mortgage rates should play a big role in this potential stabilization in the coming months. According to most accounts, rates are expected to increase as 2022 approaches, largely due to changes in Federal Reserve policy. According to MBA, mortgage rates will reach 3.3% in the first quarter of next year, rising to 4% by the end of the year. Freddie Mac predicts a slightly lower rate of 3.7% by the end of 2022.

Either way, that would be a significant increase from today’s 2.98% average mortgage rate, and this could drastically reduce the purchasing power of buyers.

“For every 1% increase in your interest rate, your purchasing power will decrease from 9% to 11%,” says Larrea. “It’s a very important difference in terms of affordability. “

The moral of the story? If you’re thinking about buying a home, now might be the time to pull the trigger. As Redfin Chief Economist Daryl Fairweather said, “Time is running out. “

“I think buyers certainly have an easier time than spring, but if they see a home they like, they should plan to move quickly,” she says.

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