The housing market is showing signs of cooling

There are signs that the once hot housing market may eventually cool off.

The bidding war has subsided, sellers are lowering list prices, and buyers are leaving because higher mortgage rates are higher than budgeted.

But experts do not expect the recession to be as rough as the housing crash before the Great Recession.

“The housing market seems to be at a turning point,” Doug Duncan, senior vice president at Fannie Mae and chief economist, told Yahoo Money. “Right now, we are predicting a mild recession in the second half of 2023 due to the slowdown in housing activity and tightening financial conditions, which will reduce mortgage demand.”

The once hot housing market could eventually cool off.

The once-heated housing market is finally showing signs of cooling off. (Credit: Getty Images)

Sellers are already seeing a change in home buyers.

According to a recent Redfin survey, last month, 61% of home offers faced a bidding war – when an agent reported at least one competing bid – down from 63% in March and 67% on a consistent basis a year earlier, according to a recent Redfin survey. .

In April, 76% of Americans on Fannie Mae’s Home Purchase Sentiment Index® (HPSI) said it was a bad time to buy a home, up from 73% in March. Overall, the attitude of Americans towards buying a home has dropped to its lowest level since May 2020.

The pullback is clear.

Fannie Mae Home Purchase Sentiment Index April 2022

Fannie Mae Home Purchase Sentiment Index April 2022

The number of mortgage applications for buying a home dropped by 12% in the week ended May 13 – the latest data from the Mortgage Bankers Association (MBA) – from the previous week. Activity was 15% lower than a year ago.

As buyer interest declines, a growing segment of sellers across the country are forced to cut list prices – especially those in large metropolitan areas, according to data from Nationally, the share of households identified in April rose 1.3 percentage points year-on-year to 6.9%

“Vendors are finally starting to cut prices that we didn’t see before the epidemic,” Redfin chief economist Daryl Fairweather told Yahoo Money. “Home sellers are now rushing to find buyers before demand dwindles.”

(Credit: Redfin)

(Credit: Redfin)

A big reason for cooling demand is the rapid rise in mortgage rates.

However, the 30-year fixed mortgage – the most common home loan – dropped to 5.25% last week, up from the previous 5.3% per Freddie Mac, up 2 percentage points from the beginning of the year.

That sent skyrocketing monthly mortgage payments. At the beginning of 2022, the average home payment for sale was below $ 1,700. That’s close to 2,450 now, according to Redfin.

“First-time and entry-level home buyers are losing out on rising mortgage interest rates,” Duncan said. “It simply came to our notice then. Wages have risen marginally, but inflation has also risen, challenging any real wage gain. “

According to Robert Ditz, chief economist at NAHB, rising prices are also entering the home-building process, with building materials costs up 19% year-on-year. It has also weighed on the confidence of manufacturers, which fell to its lowest level since June 2020 for the fifth consecutive month in May.

With higher mortgage rates, “less than 50% of new and existing home sales are affordable for an average family,” Dietz said in a press statement. “The housing market is facing increasing challenges.”

Fannie Mae Duncan expects the recession to mean that home sales will shrink by 10% to 11% from 2021 this year. Meanwhile, sales of existing homes and sales of new homes have declined But there is no chance of an accident like more than a decade ago.

“The housing market is cooling and we’ve probably reached the top of home sales – especially for existing homes. House prices have risen steadily – even faster than the 2002-2006 housing boom, “said David Barson, senior vice president at Nationwide Mutual and chief economist at Yahoo Money. “Importantly, this will not be a repeat of the 2008-2010 housing bust. People who have bought a home in the last decade can actually afford the mortgage they got. “

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Ronda is a personal finance senior reporter at Yahoo Money and an attorney with experience in law, insurance, education and government. Follow him on Twitter writesronda

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