According to Google Trends data, more individuals are searching "housing crash" and related terms now more than ever.
This is understandable because, for more than a year, the housing market has been operating without brakes, with high sales driven by demand, rising house prices, and mortgage rates – making it almost impossible for millions of Americans to be able to buy a home.
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Lower home prices, however, could be on the way, as there are signs a housing market slowdown in 2022 has begun.
5 Signs the Housing Market Is Slowing Down
I can't predict the future of the housing market with 100% accuracy, and neither can the best housing experts, but we can make pretty good guesses on what is going to happen by looking at current market conditions.
Some of the things that point to the hot real estate market cooling off include:
The Number of Homes for Sale Is Growing
At the start of the pandemic, due to the shift to work from home, there was a huge demand for houses that couldn't be met.
This led to many people competing for the few houses available, which caused home prices to go through the roof.
While demand for homes still outstrips supply, the number of listings is increasing because more prospective buyers are opting to stay out of the market due to the high home prices and rising mortgage rates, and more homeowners are selling.
According to Realtor.com, June 2022 had a 19% increase in listings compared to the same time last year. This represents the biggest annual increase in home listings since 2017, when they started tracking the metric.
Despite the increased supply, home prices will likely continue to go up, but not as fast as before.
Sellers Are Reducing Prices
For a long time, sellers got used to selling their homes quickly and at much higher prices than they were asking for due to bidding wars between prospective buyers.
Now, because more buyers are being forced out of the market and there is less competition for property, sellers are having to cut prices to remain competitive.
One survey found that in some US states, 40%+ of sellers lowered their prices in May 2022 to attract buyers, which is highly unlikely to happen in a hot market.
In Pittsburgh, PA, 19.7% of homes for sale had a price drop in May, up from 12.9% in May 2021.
A report by Moody's Analytics stated that housing prices could come down by up to 10% in the next 12 months in many cities around the country.
Mortgage Uptake Has Declined
Increased inventory giving buyers more home options to look at and reducing prices should bring more aspiring homeowners to the market, but high mortgage rates are keeping them away.
Mortgage rates have risen dramatically since the beginning of the year, from 3.29% in January to a national average of 5.90% for a 30-year fixed mortgage at the end of August.
The last time mortgage rates were this high was during the housing crash of 2008.
As of June, increased mortgage rates had resulted in a 17% mortgage applications drop compared to last year and this has cooled demand for homes and slowed sales for several straight months.
I believe if mortgage rates hadn't surged as quickly as they did, scaring many prospective buyers from purchasing property, the real estate market would still be red hot.
Over the last few months, we have seen a slowdown in home sales, which is a key indication that the real estate market could be getting back to normal.
According to the National Association of Realtors Chief Economist, "Home sales have essentially returned to the levels seen in 2019 – prior to the pandemic – after two years of gangbuster performance."
With only 17% of potential home buyers believing that now is the right time to buy a home, according to a Fannie Mae Home Purchase Sentiment Index, sales could fall further in the coming months.
This will positively impact home prices because it is likely more sellers will lower their asking price to increase their chances of getting an offer from prospective buyers.
Reduced Real Estate Industry Activity
Several real estate firms have laid off employees because there has been a drop in demand for their services, such as house tours.
For example, in June, Redfin, a Seattle real estate company, announced it was letting go of 8% of its workforce due to a housing downturn that the CEO said was hitting their business hard.
The Real Estate Market Is Slowing, but Home Prices Aren't Going to Be Cheaper Immediately
Again, while home inventory is improving, there is still a housing shortage, and this is likely to keep home prices up until next year because of demand and supply factors.
But because demand for houses has also gone down, prices won't increase as rapidly since there isn't as much competition as was seen during the last two years.
If you're in the market for a house, it's good to know what is happening, but I would suggest that you don't let current industry conditions be the only factor that determines whether you'll move on with your home purchase or not.
Instead, look at your financial position and where you're in life to decide whether you can afford to buy a home.
If you meet the following conditions,
You've no debt
You've got a 3-6 month emergency fund
Your house payment will be less than 25% of your monthly income
You can cover the closing cost of purchasing a home upfront
You can pay at least a 20% down payment for your home
You should be ready to buy a home in any market condition.
If you're considering selling your home, you can get a good price for it now – but if you delay listing, prices could drop in the coming months, particularly if there is a recession, which experts are warning off.
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