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Following a COVID-fueled surge that drove up prices and competition in the housing market for the last two years, things appear to finally be cooling off and softening in the real estate market.
According to The Washington Post, new inventory and higher interest rates have had an effect on the market, with more buyers priced out and being forced to postpone their searches due to prices that are still higher than they were a few years ago, as well as higher interest rates, which has cut down on affordability.
“The market’s cooling off, but that cooling has happened on the backs of buyers getting discouraged, on buyers being forced out of the market,” Jeff Tucker, a senior economist at Zillow, told WaPo. “People who thought they would join the party are being greeted by absolute carnage as far as affordability right now.”
The affordability crunch is being felt as sellers remain reluctant to lower the prices of their homes when they list them, after bidding wars in the last few years that saw homes sell for as high as $100,000 over the list in some markets, while interest rates continue to climb due to the Fed raising borrowing costs in an attempt to tamper sky-high inflation. Though rates have now fallen for the second week in a row, the average rate still sits at 5.3 percent, versus a 2.9 percent rate at the same time last year.
The increase in interest rates has led to an average monthly payment increase of $500, according to calculations on current homes on the market on Zillow. A listing for a home in New York at $429,000 jumps $477/month when the interest rate climbs from 2.9% to 5.3%, while in a market like Atlanta, a listing for $489,000 sees a $545 increase in monthly payment amounts.
Still, for those who are still able to be in the market, it could be good news, as more inventory is starting to pop up, with homes sitting on the market for longer than they did a year ago, and some sellers are being forced to lower their asking prices.
“What we are seeing today is that buyers do, in fact, have a limit,” Ali Wolf, chief economist at Zonda, told WaPo. “prospective home buyers have gotten to the place that they are either intentionally stepping out of the housing market as they wait and see what happens next, or are forced out of the housing market given the higher costs of homeownership.”
While some softening is good for buyers who still can afford to purchase a home, even while it is disheartening for those prices out of the market, it is also bad news for sellers hoping to make top dollar. With less potential buyers and more inventory, the lack of competition for homes could mean that they may not sell at all—or will be forced to cut prices and make far less than expected profit.
Still, they should be able to list at prices that are higher than they were before the pandemic and record low-interest rates. According to data from Black Knight, home values are still up 19% on average in the year ending in June.
Photo: Reuters / Chris Roussakis
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