For more than two years, the U.S. real estate market has been booming. Home values have increased at a record rate, properties have sold fast and buying a home in many parts of the country has become a challenge. Now, sales of existing homes are falling, price appreciation is slowing and some home sellers are even cutting their prices – all signs that the superheated housing market is finally cooling down. Here’s why this is happening and what may be ahead for real estate.
Why is the real estate market cooling off?
The main reason for the cooling market appears to be that the higher cost of homebuying has become a barrier to new purchases. Real estate values have soared since the start of the pandemic and mortgage rates have risen since January of this year, keeping a growing number of potential first-time and move-up homebuyers on the sidelines. The expectation of an upcoming recession is another reason why some would-be buyers are putting their plans on pause.
What continues to support strong home values?
Despite the trends above, there are some factors that are still contributing to robust home values. For starters, the U.S. unemployment rate remains at a historic low, which is helping to keep household finances strong. Secondly, mortgage lending standards have stayed tight since the 2008 recession, and the risk of another foreclosure crisis that could weigh down home prices looks remote. Lastly, if a recession does arrive, there’s a good chance that it will cause mortgage rates to drop again, enticing more homebuyers back into the market with cheaper home financing.
What’s next for the real estate market?
Many experts believe that home value appreciation in the next few years will be much slower than over the past two years. This may include prices flattening out completely or even dropping modestly in some markets for a time. However, because of sensible mortgage lending practices and the low unemployment rate, few observers currently expect that there will be a significant drop in home prices like what was seen in 2008.
Should homebuyers wait or buy now?
With the housing market cooling, many potential homebuyers are wondering if they should buy now or delay their purchases in the hopes that home prices might drop. Without knowing the future for certain, there’s no surefire answer to this question. While home prices may drop later and provide savings for patient buyers, it’s also possible that prices, mortgage rates or both could continue rising, making it more expensive to wait. For a buyer who plans to sell their current home when they purchase their next one, timing may be far less relevant because both the purchase price and sales price could move up or down together with the market.
Regardless of what’s ahead for the real estate market, homeownership continues to offer many valuable benefits. If you’re thinking about buying a home, it’s important to be ready when the right opportunity arrives. A knowledgeable local real estate agent can help you learn which direction the market is moving where you want to buy, and a trusted mortgage professional can help you get “mortgage-ready” and create a home financing strategy.
For a free home financing consultation, please get in touch today.