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Home Buying & Selling

Is the Housing Market Cooling Down? Here's What This Means for You

7 Minute Read

As the summer months draw to a close, temperatures may not be the only thing cooling down. The U.S. housing market, which has been blistering hot for several years now, might be simmering down too.

Have we reached a housing market peak? If you don’t think we’re already at that point, there’s talk we might be soon. With too few homes for sale and mortgage rates on the rise, prices have reached a fever pitch—and a lot of buyers are deciding to put off their home search.

What does all this mean if you’re a current homeowner, a potential home buyer, or a possible home seller?

Home value growth is still going up—but at a slower pace.

According to the Housing and Mortgage Market Review, home prices have a 95% chance of rising over the next two years.(1) Plus, home prices are currently at record highs. The median list price in July 2018 was $299,000; that’s nearly a 9% increase in just one year!(2)

But the rate of that growth is beginning to slow down in many of the country’s largest cities. Seattle and Sacramento reported the greatest slowdowns since the beginning of 2018. By this time next year, home value growth is expected to be at 6.6%.(3)

Still, overall home values are trending up for home owners and sellers. So, you could still be in a good position when you’re ready to sell.

The number of homes for sale remains low, but there are glimmers of hope for buyers.

Because the market’s been sizzling, it’s been pretty rough out there for home buyers. If you’ve been on the hunt for a home, chances are you’ve seen plenty of houses you like, but they’ve already been under contract. Or maybe you’ve ended up on the short end of so many bidding wars you’ve lost count of them all.

Why does this keep happening? There simply haven’t been enough homes available to meet demand. But home buyers who are looking for a little relief can finally breathe easier.

Thirty of the nation’s 100 largest metros—including some of the most traditionally unaffordable cities like New York, Miami and Los Angeles—saw increases in the number of homes on the market in the second quarter of 2018.(4)

That’s a good sign, but rising construction costs, labor shortages and scarcity of land are making it hard for homebuilders to meet the demand for affordable entry-level homes. Construction on new homes took a 12% dive in June 2018, its lowest level in nine months.(5)

But building permits have been on the rise so there’s a chance homebuilding could be too. However, this won’t happen soon enough to make a difference for buyers competing for homes right now.(6)

As interest rates rise and home sales cool, sellers are expected to start cutting prices.

Home sales have fallen 1.5% over the past 12 months, and existing-home sales slowed even more from April to July.(7) It’s not enough reason to panic if you’re trying to sell a home in the near future; the market is still considered good for sellers. But you might need to adjust your expectations.

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Rising interest rates have played a factor in the increasing cost of homes for buyers. In August of 2017, the average rate for a 15-year fixed-rate loan stood at 3.18%, but it grew to 4.08% in one year. And to make matters even more dramatic, the Federal Reserve says that another interest rate hike is likely in September.(8)

As a result, many would-be buyers are choosing to press pause on their search for a new home. And sellers who are seeing fewer offers on their homes are lowering their asking prices.

In June 2018, 14% of all homes listed for sale had a price cut—and it looks like we could see more of these cuts moving forward.(9) If you’re looking to buy a home, this is music to your ears! If these price cuts continue, prospective home buyers could soon gain a little more negotiating power.

What Does a Cooling Housing Market Mean for Buyers?

Even though there are signs of a cooling housing market, make no mistake: Competition among buyers will likely still be fierce over the next few months. So, if you’re planning to buy before the end of the year, make sure you’re fully prepared.

  1. Get a mortgage pre-approval. When you’re pre-approved for a mortgage loan with a lender that offers legitimate, credit-underwritten pre-approvals, you give yourself a financial leg up on the competition. Getting pre-approved will show sellers you can back up your offer with real money, which will put you in a much more competitive position.

  2. Stick with your budget. We get it; it’s been a frustrating few years for folks looking to buy a home. Stay patient! Remember, Dave recommends keeping your mortgage payment to no more than 25% of your monthly take-home pay on a 15-year fixed-rate mortgage. With the market starting to favor buyers, you could end up in a better position to negotiate, so take advantage of that!

  3. Be ready to act fast. Even with demand starting to cool, inventory is still tight. That means, homes are still selling quickly. Over half the houses sold in the month of July were listed for less than a month.(10) If you find a home you really like and you’re financially prepared to make an offer, be ready to do so. Otherwise, you might miss out.

  4. Work with a pro. Whether you’re in a hot market, a cold stint, or somewhere in between, buying a house can be stressful. That’s why you want to partner with an experienced real estate agent. A good agent can walk you through all the complex details of buying a house to close on a home—no matter what the housing market looks like!

What Does a Cooling Housing Market Mean for Sellers and Homeowners?

It’s easy for homeowners and sellers to get spooked when they hear words like housing bubble get thrown around. First, take a deep breath!

Like we mentioned earlier, home values are still on the rise and will likely continue to be in 2019. But with demand taking a dip and more buyers choosing to wait as the housing market levels off, you might need to check your approach.

  1. Don’t borrow against your home’s value. With home equity increasing and plenty of homeowners staying put in their current homes, more folks are tapping into that equity by taking out a home equity loan or home equity line of credit (HELOC).(11) This is a bad idea. A remodeled kitchen or new couch isn’t worth putting your home at risk. Saving up and paying cash for upgrades is a much smarter move.

  2. Be willing to readjust your price. Savvy house hunters can sniff out overpriced homes from far away. If your home has been sitting on the market longer than expected, talk to your real estate agent about lowering the price of your home. Will it hurt a little? Maybe. But the longer your home stays on the market, the more doubt seeps into buyers’ minds about how great your home really is. If your listing becomes stale, buyers are more likely to skip over it.

  3. Stay patient. With demand leveling off, you could see a drop in the number of offers you expected just a year ago. That’s okay! It might take a little longer than usual to sell your home as the housing market cools down. Stick with the home-selling process, and use the time to work with your agent and get your house in order!

Stay on Top of the Trends With A Pro.

It’s hard to predict what will happen with the housing market. Things can change rapidly from one month to the next! And what’s happening in the housing market in California might be quite different from what’s going on in Iowa.

That’s why it’s important to work with an experienced real estate agent who can help you navigate the trends in your area. Whether you’re a first-time home buyer trying to make sense of it all or a homeowner looking to sell your house in a hurry, working with one of our Endorsed Local Providers (ELPs) will help you reach your goals.

Find an agent today!