Many sellers are hesitant to lower their prices, but buyers have more options now that houses are sitting on the market longer. After a meteoric rise in home prices emboldened sellers over the past couple of years, there are now signs that the U.S. housing market may be cooling off.
In hot markets like San Jose, Chicago and Phoenix, “for sale” signs are more prevalent. The volume of U.S. monthly home sales have hit double-digit declines recently. This is according to estimates from the National Association of Realtors. The number of homes sold was down 19% in May compared to May of 2021 according to Zillow. And according to some preliminary data, it looks like the decline continued in June.
“This year’s buyers are just much more savvy, and they deserve to be because they’re going to be paying more to purchase the home,” said Daniel Valdez, an agent with eXp Realty in Sacramento.
Even with this slight slowdown, it’s given little relief to buyers. The combination of high interest rates and inflation, many would-be buyers are forced to walk away.
Some sellers are mindful of the huge gains of the 2020 and 2021 housing market, which brought the average listing price up more than 40%, and are reluctant to lower their prices or expectations.
“The market’s cooling off, but that cooling has happened on the backs of buyers getting discouraged, on buyers being forced out of the market,” said Jeff Tucker, a senior economist at Zillow. “People who thought they would join the party are being greeted by absolute carnage as far as affordability right now.”
Record low interest rates helped fuel the surge in housing prices in 2020 and 2021 but the Federal Reserve reversed course earlier this year after inflation spiked. Higher rates means higher borrowing costs. The 30-year fixed-rate mortgage is up 2.9% from a year ago. That coupled with a battered stock market and higher costs for food and fuel, makes it even harder for buyers to save up for a down payment. The result is would-be buyers are out which leads to fewer deals.
Rachel Payne, a public school teacher in northern Virginia, told The Washington Post that she gave up on her search recently after her dream home fell through. She and her fiancé, a professional poker player, put in an offer of $1.05 million on a four-bedroom house in the Belle Haven neighborhood of Alexandria, but the seller wanted to waive an inspection. A move Payne thought to be too risky. A week later, she says it sold for the same price.
“What we are seeing today is that buyers do, in fact, have a limit,” Wolf said. “Prospective home buyers have gotten to the place that they are either intentionally stepping out of the housing market as they wait and see what happens next, or are forced out of the housing market given the higher costs of homeownership.”