The Housing Market Is Slowing Down- Here’s Why

Housing Market Slowing Down

Is The Housing Market Slowing Down?

The housing market is finally beginning to show some signs of weakening in the United States, and I think that is a good thing!  For the last two years thanks to record low-interest rates, supply issues, and the pandemic, the housing market has been on fire. 

However, like all fires, if you don’t figure out a way to put it out, there will eventually be nothing left. That may sound a little dramatic, but it’s true. We aren’t currently at a huge risk for burning the whole thing down, but we need to pump the breaks a bit. 

What is a Housing Market Slow Down? 

A housing market slowdown or “correction” is simply a decline in the number of homes being sold and/or reduced home value appreciation. Simply put, a housing market slow down means there are fewer people buying houses and more houses for sale on the market.   The housing market is cyclical and can have seasonal slowdowns, but can also be affected by economic conditions like inflation, rising mortgage rates, or supply issues. 

When Will The Housing Market Slow Down? 

The housing market has started to show signs of a cooldown. While I know many reading this are hoping for some relief in prices I don’t think you will see that soon. 

But it’s not all bad news… 

The housing market slowing down is a good thing for homebuyers because it’s going to create some opportunities for those who are willing to brave the craziness. 

Since Mid 2020 trying to buy a house has been extremely difficult.  Interest rates were low, but so was inventory. This means that only the most qualified homebuyers could purchase a home.  

If you didn’t: 

  • Pay Cash
  • Offer Way Above Asking  
  • Waive Appraisal 
  • Waive Inspection 
  • Buy a Fixer-Upper 
  • Buy in a smaller market 
  • Or Have the Hook-Up 

Your chances of finding a house over the last couple of years were slim.  The low-interest rates that most were able to get will help to soften the blow as prices will (hopefully) come back down to earth. 

Has The Housing Market Started to Cool and Slow Down? 

Yes. It wouldn’t even be crazy to think that it might begin to cool down even more over the next few months. 

With rising interest rates and record-breaking inflation Americans are feeling the pinch everywhere.  The cost of literally everything is going up and that is begging to take a toll on spending. 

As people continue to spend more money just to survive, fewer homebuyers will enter the housing market.  We are seeing this now.  

For much of January through April, it was business as usual. Mortgage rates had increased into the 3’s and then 4’s but it didn’t seem to have a huge effect on volume. 

However, once rates entered the 5 percent range (and even going into the 6 percent range) we noticed things started to slow down. 

And the data backs it up…

There are a few metrics that are used to determine or predict if a housing slowdown will occur. 

The Signs of a Housing Market Slow Down

There are a few metrics that are used to determine or predict if a housing slowdown will occur. Most if not all of them point towards a cool down in 2022 and beyond. 

Mortgage Applications

Mortgage applications are one way we can track potential volume in the housing market. When mortgage applications are high, there are a lot of buyers in the market. 

When mortgage applications begin to decline, this means there are fewer potential buyers in the market. 

As of June 29th, 2022 mortgage applications are down 20% year over year. Refinances, which were a huge boom last year are down 80%. 

Also important is that the average loan amount is steadily declining as well. The average purchase loan amount is $413,000 down from it’s high of $460,000 in March of 2022. (Just 3 months ago). (Source: MBA) 

All of these signs point to a housing market that has experienced the same shock consumer have. If these trends continue, we could see the housing market level out quicker than many expected. 

Home Inventory for Sale Increases

This is probably the easiest way to see that the housing market is beginning to cool down.  Inventory or the lack thereof is what has the housing market in the pickle it’s in. 

With so much demand, and not enough supply the housing market has become incredibly unbalanced. The only way to balance out the rising mortgage rates and inflation is to see some correction in home prices. 

Inventory increases will lead us to some much-needed price reductions. 

We are already seeing inventory increase rapidly all over the country as well. While you have to remember that real estate is local, nationally we are seeing between and 12 percent and 13 percent increase in available inventory. 

Locally, there could be markets that see as much as 40 to 50% increases in available inventory. As fewer buyers flood the market to purchase houses, more houses will be available. 

More houses being available should at some point lead to slower home value appreciation. 

Price Cuts on Listed Houses 

Zillow has tracked home sales in the top 50 major cities in America to gauge the health of the housing market. 

In their latest research, they have found that 11.6% of homes for sale in those markets have had a price cut in the last 30 days. 

Now, this doesn’t mean that the value of homes is dropping, at least not yet. It does mean that we are likely beginning to see some of the crazy overinflated values come back down to normal. 

As inventory lingers, and price cuts take place, homebuyers will be able to find houses and not have to pay over the list price to get them. 

Days on Market Increases

Another likely indicator of a housing market correction is how long homes are on the market before they sell.  In real estate, this is called “days on market” 

Even though we are seeing our fourth consecutive month of a drop in existing home sales, the average days on market is at a record low of 16 days as of June 29th, 2022. 

The faster homes are selling, the harder it is for home buyers, especially first-time home buyers and credit or income-challenged buyers. 

I believe we will continue to see days on the market increase throughout 2022 and into 2023. 

What Happens When The Housing Market Slows Down? 

In a normal environment, a housing market slow down isn’t a huge deal.  There are seasonal slowdowns during the winter months when buyers are less likely to purchase a house. 

When the market begins to cool because of economic factors, what happens depends largely on how much it slows down and how fast. 

If you were to see a huge decrease in demand quickly over a month or two, this would have drastic impacts on the value of homes and the overall economy. 

In fact, a sudden huge drop in demand can lead to a housing bubble or crash as we saw in 2008. However, slowing down wasn’t the only factor. 

If you have a gradual taper of demand this can actually be a good thing. It allows the market to stay balanced and prevents it from overheating.  With more homes available and fewer people to purchase them, it will create an opportunity for those who need to buy. 

Should I Buy A House If The Housing Market Slows Down? 

The decision on whether or not you should purchase a house is personal and complex.  The number one thing you must be able to do is afford the home. If you can afford the monthly payment and you can live in the home for a while (5 or more years) there is almost never a bad time to buy. 

Buying a house in a slowdown does present you with some opportunities. When the market is hot, the buyer is at a disadvantage. 

Over the last two years, houses were selling within hours of being listed, open houses had hundreds of people going through them, and dozens of offers were being made. 

As a result, people were paying tens of thousands of dollars over the asking price of the house just to win the bid. Not to mention they were waiving things like appraisal and inspection contingency, which are designed to protect you!

Buying a house during a cool-down period can help to eliminate the craziness. You’ll find more homes for sale, can offer a more fair price, and possibly even get help with your closing costs. 

Buying a House in any Housing Market 

As I mentioned above, if you have to buy a house, you shouldn’t let the current issues stop you.  As long as you purchase a home that fits your budget, avoid buying the most expensive house in the neighborhood, and keep an eye on real estate trends in your area you can win. 

There is no wrong time to buy a house. The only thing that matters is finding something that fits your needs and that’s affordable. 

Read Our First-Time Homebuyer Guide

Housing Market FAQ’s 

When Will The Housing Market Slow Down? 

We are already seeing signs of a housing market slowing down now. Fannie Mae and many other economists predict that the market will continue to slowly cool for the rest of 2022. 

Some predict a much sharper cool down starting in late 2022 and going into 2023. 

Is a Housing Market Slow Down the Same as a Crash? 

No. If you research the housing market, you will notice that many of economists are using language like slow down, correction, and cool down.  A crash is a much more catastrophic event and one that is not currently likely now. 

Why Does the Housing Market Slow Down? 

The housing market can slow down for a variety of reasons. Seasonal slowdowns during winter are common. Weather can also affect the housing market as we’ve seen recently with hurricanes and prolonged winter. 

Economic impacts can also affect the housing market. If inventory is low the housing market will heat up, however, if interest rates rise, or unemployed rises it will slow down. 

Will Housing Prices Drop Anytime Soon? 

Most of the experts are predicting that home price appreciation will slow down, but there isn’t a lot of data about prices actually dropping.  Now, this doesn’t mean that you won’t see price cuts or even pay less for a house when you find it. 

This refers to the value of homes falling below pre-pandemic levels, and most experts agree that’s highly unlikely. 

Is the Housing Market Going to Crash? 

That’s not likely. There are too many factors that must be present for this to happen and we just don’t see them yet. Check out our recent article: Is the housing market going to crash? 

About The Author

Channing Moore

Channing is the owner of Bayou Mortgage. He is passionate about empowering people through education and training to own a home. In his spare time you can catch him at church, reading a book or working on his latest project.

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