The housing market is changing.
American home buyers have battled for a limited amount of housing inventory and eager home sellers have raised their prices to historical highs.
Spurred on by cheap mortgage debt and the need for more space, intense buyer competition resulted in bidding wars that crushed housing affordability for first-timers.
With inflation at a forty-year high and consumer sentiment at a decade low, American consumers are grappling with rising costs.
There are two signs that the real estate market is cooling off.
The past two years have seen record low mortgage rates, but they have come to an end.
Mortgage rates are higher than they were a year ago. Freddie Mac reported that the average 30-year mortgage rate rose to 5.05% this week from a low of 2.68 in December 2020.
As mortgage rates put more pressure on housing costs, more and more people are sitting on the sidelines, which is putting a lid on the housing market's unprecedented demand.
Sam Khater, chief economist at Freddie Mac, told Insider that mortgage rates continued to inch downward this week but are still significantly higher than last year. The potential homebuyer pool has shrunk, supply is on the rise and the housing market is normal.
In certain areas of the country, house price growth has begun to moderate due to the fact that buyers are priced out of the market.
As sellers change their price expectations, price drops are more common. "The picture of a softer housing market is becoming more clear, especially to home sellers who are increasingly turning to price drops as buyers become more cost-conscious under higher mortgage rates," Fairweather said.
The number of home sellers who dropped their asking price during the four week period ended May 22 was the highest in nine months.
"Many places that saw a surge in migration and a sharp increase in home prices over the past two years have now seen an abrupt drop-off in demand, leading sellers to drop their prices with increasing frequencies."
Housing inventory is increasing at the same time that prices are falling. The housing market could be cooling down.
Fairweather said that a home's price is driven by the balance of supply and demand, and when demand drops off and supply increases, rapid price increases evaporate quickly.
While the US is in the middle of a severe housing shortage, the homebuilding sector is increasing its production and welcoming more workers to the industry.
There were 344,000 unsold single family homes in the US last week, an increase of 26 thousand homes.
Mike Simonsen, founder and creator of Altos, said in a statement that inventory grew by 25,000 in a week. Since we are coming off the record lows, that may be the biggest jump we have seen. We now have 344,000 homes, which is six more than a year ago.
May's increase in construction is likely due to gains in employment, despite the shortage of skilled workers in the homebuilding sector.
Residential building construction employment increased by 5,000 and non-residential construction employment increased by 2,400. Residential building grew 7.6% compared to pre-pandemic levels.
The deputy chief economist at First American told Insider that there should be more hammers at work.
Builders are increasing their employment and production levels in order to close the real estate market's supply and demand discrepancy. With more homes being built, buyers are faced with less competition for housing. There is a chance that this vibe shift will lead to further declines in home prices.
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