By: Annie Sisk
After some wild cycling, the U.S. housing market is rebalancing. A protracted period of seemingly endless price hikes and insatiable hunger for homes to buy that began at the start of the pandemic is in the middle of cooling off. Even so, there’s a conflict between the opinions of leading real estate experts about what to expect for 2023, primarily based on the complex and shifting interplay of several leading factors.
Overall, there are vital signs that the market is still in the middle of a slowdown that began in 2022. That doesn’t mean the market is crashing, or you should pull out or change any real estate decisions you’ve already made. If you need to sell your home quickly, don’t decide to put it off based on these market fluctuations, which simply means that conditions are returning to a more stable, “normal” state.
Here are five indicators that signal a real estate market downturn is still occurring.
- More Homes Available for Purchase
During the hottest market conditions, no one could find a home to buy. That’s because housing inventory—the number of homes for sale—shrank dramatically. After dropping to a record low level, home inventory is rebounding in many geographical areas of the country.
In mid-2022, the number of available homes on the national market was 19% higher than at the same time in 2021. And the inventory levels in some markets were significantly higher. Austin, Texas, saw an increase of over 140%, while Denver, Colorado, inventory was almost 50% higher than the previous year.
- Not As Many Buyers are Looking for Property to Purchase
The fact that more property is available for purchase reflects a shrinking demand for residential property. When fewer buyers are actively searching for homes to buy, the longer homes will stay listed. A drop in buyers indicates that the market is cooling off from those earlier heated conditions, where competing buyers struggled to outdo each other in offering concessions and price bonuses to convince sellers to accept their offers.
- Prices Dropping More—and More Frequently
By the same token, when house listings last longer and fewer buyers are around to express serious interest, sellers feel compelled to drop their prices to entice those purchasers. It’s the reverse of the earlier situation when buyers clamored for sellers to choose them. Now it’s the sellers who make concessions, and the primary benefit they make is to trim the home’s listing price.
- Price Gains Slowing Down
A related yet distinct phenomenon is the slowdown in price gains. Home values soared 20%, leading to an average value gain of slightly over $50,000 in 2021. The values are not expected to drop precipitously, nor will the payments be erased soon. However, the rate of those gains has slowed, indicating that the market continues on its slowdown course correction.
- Interest Rates for Residential Mortgages on the Rise
Rising interest rates for residential mortgages indicate a continued market slowdown. While the Federal Reserve’s interest rate hikes, designed to avoid a recession, don’t directly impact mortgage rates, they generally make it more expensive to borrow money. That has indirectly resulted in rising mortgage rates for home sales. That increase has eased up recently, with current average mortgage interest rates about half of what they were last year.
Riding a Real Estate Roller Coaster
It’s important to remember that the real estate market fluctuates frequently based on myriad factors and economic conditions. A market slowdown doesn’t mean you shouldn’t sell your home as you’d planned or you shouldn’t buy a house if you’re ready. However, it’s wise to pay attention to conditions and understand the practical impact of these factors on your situation.