Evidence is accumulating of a slowdown in the housing market

Signs are emerging that the once-hot housing market may finally cool off.

Bidding wars subsided, sellers slashed listing prices, and buyers headed for exits as high mortgage rates kept them out of budget.

But experts do not expect the downturn to be as severe as the housing crash that preceded the Great Recession.

“The housing market appears to be at a tipping point,” Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae, told Yahoo Money. “For now, we expect a mild recession in the second half of 2023 due in part to slowing housing activity and tightening financial conditions, which will slow mortgage demand.”

The once-hot housing market may have finally begun to cool off.

Evidence is emerging that the once-hot housing market is finally cooling off. (Image source: Getty Images)

Sellers are already seeing a shift among homebuyers.

Last month, 61% of home bids faced a bidding war — when an agent reported at least one competing bid — down from 63% in March and 67% a year ago on an adjusted basis, according to another Redfin . study.

In April, 76% of Americans are at Fannie Mae Home Buying Sentiment Index® (HPSI) He said it’s a bad time to buy a home, up from 73% in March. In general, Americans’ attitude toward buying a home has fallen to its lowest level since May 2020.

The decline is appreciable.

Fannie Mae Home Buying Confidence Index, April 2022

Fannie Mae Home Buying Confidence Index, April 2022

The volume of mortgage applications to buy a home fell 12% in the week ending May 13 – the latest data available from Mortgage Bankers Association (MBA) – from the previous week. Activity was 15% lower than it was a year ago.

With buyer interest waning, a growing percentage of sellers across the country have been forced to lower listing prices — especially in large urban areas, according to Data from Realtor.com. Nationally, the share of homes reduced in April increased 1.3 percentage points to 6.9% year on year.

“Sellers are finally starting to cut their prices at rates not seen since before the pandemic,” Daryl Fairweather, chief economist at Redfin, told Yahoo Money. “Home sellers are now scrambling to find a buyer before demand weakens.”

(credit: Redfin)

(credit: Redfin)

One of the main factors slowing down demand is the rapid rise in mortgage rates.

While the interest rate on a 30-year fixed mortgage – the most popular home purchase loan – has gradually fallen to 5.25% last week from 5.3% The former, according to Freddie Mac, has been more than two percentage points higher since the start of the year.

This has resulted in higher monthly mortgage payments. At the beginning of 2022, the payment on an average home for sale was less than $1,700. Now it’s approaching $2,450, according to Redfin data.

“New and novice homebuyers are bearing the brunt of higher mortgage rates,” Duncan said. This is a major and dangerous shift in affordability, because income is not increasing at a similar pace. Wages have increased nominally, but inflation has also gone up, challenging any wage gains on a real basis.”

Higher prices are also seeping into the homebuilding process, with building materials costs up 19% from a year ago, according to Robert Dietz, NAHB’s chief economist. This is heavy confidence builders Also, which fell for the fifth consecutive month in May to the lowest reading since June 2020.

With mortgage rates soaring, “Less than 50% of new and existing home sales are affordable for a typical family,” Dietz said in a press release. “The housing market is facing increasing challenges.”

Duncan of Fannie Mae expects the slowdown will mean that home sales this year will shrink 10% to 11% from 2021. Already, Existing Home Sales And New home sales Down. But an accident like the crash that occurred more than a decade ago is unlikely.

“The housing market is cooling and we may well have passed the peak in home sales — especially for existing homes.” David Pearson, Senior Vice President and Chief Economist at Nationwide Mutual, told Yahoo Money: “House price gains have been unsustainably fast — Even faster than during the housing boom of 2002-2006.” “Most importantly, this will not be a repeat of the 2008-2010 housing bust. People who have bought homes over the past decade can actually afford the mortgages they have taken out.”

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Rhonda is the Senior Personal Finance Correspondent at Yahoo Money and an attorney with experience in law, insurance, education, and government. Follow her on Twitter Tweet embed

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