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Is The Real Estate Market Finally Slowing Down?
The booming real estate market is starting to cool off for three important reasons.
It’s no secret that the real estate market has been a hot mess since the COVID-19 pandemic began in 2020. Housing shortages coupled with record-low mortgage rates and a desire for more versatile living space made the real estate market extremely competitive. The increased demand for limited housing inventory has resulted in homes in 97% of U.S. cities being considered overvalued. But even with higher listing prices and mortgage rates rising once again, the market hasn’t shown any sign of slowing until now.
As science has proved, what goes up must come down. We all know that the increasing housing prices and mortgage rates will eventually have to come back down, too. But despite the fact that summer is peak homebuying season, we are seeing signs that the real estate market is beginning to slow down. This doesn’t necessarily mean that the real estate market is shifting from a seller’s market to a buyer’s market, but it does mean that the dynamics of the housing market are about to change. This is due to three main reasons:
The real estate market has simply become too expensive for many prospective homebuyers, namely first-time buyers. In addition to higher purchase prices, mortgage rates are significantly higher than they were when they dipped to their lowest during the pandemic. At the time of publication, the average 30-year fixed-rate was nearly 6% and the average 15-year fixed-rate was almost 5%. Especially for first-time homebuyers, your mortgage determines what you can or can’t afford. Some homebuyers have simply been priced out for the time being.
Additionally, inflation is at a forty-year high. As Americans struggle to stay afloat as prices rise, they are becoming increasingly wary of taking on the financial burden that comes with homeownership. According to research conducted by Redfin, fewer people are starting online home searches and applying for mortgages than at the same time last year, and an increasing percentage of home sellers are lowering their asking prices after placing their homes on the market. That said, the market still feels very hot, with many homes entering into escrow within two weeks of being listed for sale. This is just happening at a slightly slower pace this year than in 2021.
The End Of Mass Migration:
Thanks to remote work, many employees have been able to venture out to live in new places and cities that were more affordable or desirable. This led to a mass migration of employees who were no longer bound to office buildings relocating all over the country. But in some cities that welcomed lots of new residents during the pandemic, such as Boise and Sacramento, the mass migration has started to drop off rather abruptly. Now that relocators aren’t coming in to drive demand, along with increasing home inventory in these cities, home prices are starting to fall. In other words, home prices are falling as the amount of homes for sale is rising, which is a combination that may cool the red-hot market.
Builders Are Kicking It Up A Notch:
During the pandemic, a lack of skilled workers, supply chain problems, and a dearth of lumber significantly slowed home construction in the middle of a severe nationwide housing shortage. The inability to build new homes quickly and efficiently only made matters worse. But it seems like builders are finally getting back on track.
While there is still a labor shortage in the construction industry, things are moving in the right direction. The homebuilding sector is welcoming many more workers in order to ramp up production, with 5,000 new employees hired to help build homes in May alone. According to Altos Research, the number of unsold single-family homes in the U.S. rose by 8.2% at the end of May with an increase of 26,000 more available homes, many of which were the result of new construction.
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