After a stunning rise in home prices enriched sellers and keyed up buyers into frantic bidding wars, there are signs that the U.S. housing market is starting to cool amid a surge of new inventory and higher interest rates.
“For sale” signs are multiplying in previously red-hot markets like San Jose, Chicago and Phoenix. The volume of U.S. monthly home sales have registered double-digit declines in the past year, according to estimates from Zillow and the National Association of Realtors. In May alone, the number of houses sold is down 19 percent from the year-ago period, according to Zillow, and preliminary data suggests the falloff was more pronounced in June.
The slowdown has, so far, provided little relief to buyers. Instead, analysts say, a growing affordability crisis ? driven by the collision of inflation and rising interest rates ? is forcing many would-be buyers to walk away.
That’s because some sellers, mindful of the stratospheric gains of 2020 and 2021, which brought the average home price up more than 40 percent, are reluctant to lower their expectations. And home values are still gaining, up 19 per cent on average in the year ending in June, according to the data firm Black Knight.
The cooling housing market reflects broader changes in the economy as policymakers work to get decades-high inflation under control.
Rock-bottom interest rates in 2020 and 2021 helped fuel the surge in housing prices since the start of the coronavirus pandemic in 2020. But the Federal Reserve reversed course this year after inflation spiked, making the price of food, fuel, housing and other essentials a dominant economic concern. The central bank has bumped up its benchmark interest rate three times in 2022 and signaled that four more increases are pending. The most recent hike in June was three-quarters of a percentage point, the Fed’s largest since 1994.
Higher rates means higher borrowing costs: The average rate for a 30-year fixed rate mortgage stood at 5.3 percent, according to Freddie Mac, up from 2.9 percent a year ago. It also coincides with a battered stock market and higher costs for just about everything, making it harder to save for a down payment. The resulting “affordability squeeze” is keeping many would-be buyers out and leading to fewer deals, analysts say.
Housing inventory, which refers to the number of active listings, has swelled in some of the country’s most expensive metro areas, according Redfin data. It’s up 47 percent in Denver, 43 percent in Oakland, Calif., and 10 percent in San Jose.
Some markets that were transformed during the pandemic have also pumped the brakes.Many of the first-time buyers who landed homes since 2020 wound up paying more than they thought it was worth or asked family members for help.
After renting for just shy of a decade, Myles Hughes, 32, wanted a place of his own. Late last year, he got married and moved from Florida to Albuquerque for a change of
Cenery. The lack of affordable options has frustrated buyers and sellers alike, analysts say.
