After years of skyrocketing home prices and high mortgage rates, many Americans have felt discouraged about their chances of buying a home. However, recent trends suggest that the housing market may be shifting in favor of buyers, offering a glimmer of hope for those looking to purchase a home.
Market Conditions Show Signs of Easing
"June, in particular, has started to show the housing market slowing down in favor of buyers," notes Skylar Olsen, Zillow's chief economist. This shift comes after a period where remote workers and families, enticed by historically low interest rates, flocked to buy homes during the pandemic. The Federal Reserve's aggressive rate hikes in March 2022, aimed at curbing inflation, were expected to cool housing demand. However, rather than seeing a drop in demand, many homeowners opted to hold onto their low-interest mortgages, leading to a continued shortage of homes on the market and pushing prices even higher.
For the past two years, prospective homebuyers have faced the daunting combination of high prices and elevated mortgage rates. Yet, there are now indicators that the housing market is starting to tilt back toward buyers. Zillow's recent report revealed that nearly one in four home sellers reduced their prices in June—the highest rate for that month since 2018. Additionally, the average rate for a 30-year fixed mortgage recently fell to its lowest point since mid-March.
A Gradual Shift Toward a Buyer's Market
With new home construction on the rise and expectations that the Federal Reserve may begin cutting interest rates in the near future, the prospect of buying a home could become more affordable. Lawrence Yun, chief economist at the National Association of Realtors (NAR), observed that the market is gradually transitioning from a seller's market to a more neutral or even buyer-friendly one. "Homes are sitting on the market a bit longer, and sellers are receiving fewer offers. More buyers are insisting on home inspections and appraisals, and inventory is definitively rising on a national basis," Yun stated after the release of the latest existing home sales data, which showed a 5.4% decline in June.
Signs of Improvement for Homebuyers
Rick Sharga, founder of real estate consulting firm CJ Patrick Company, believes the worst may be behind us. "We're sitting today at probably, if not the worst affordability ever, really close to the worst affordability ever—so we almost have nowhere to go but up," Sharga said. He highlights that home price appreciation is slowing, with Zillow reporting that annual appreciation in June was just 3.2%, the slowest rate since 2011. Additionally, housing inventory is on the rise, with 1.32 million active listings in June, a 23.4% increase from the previous year.
More Time and Options for Buyers
Buyers are no longer feeling the same urgency to make immediate decisions. In June, homes stayed on the market for an average of 15 days—still quicker than pre-pandemic times but four days longer than the previous year. Olsen notes that this offers buyers "a bit more breathing room," signaling a market that's beginning to balance out.
Another positive sign is the growing expectation among Wall Street investors that the Federal Reserve will start cutting interest rates soon. This could further ease mortgage costs, potentially encouraging more homeowners to list their properties, thereby increasing the supply of available homes.
Construction and Inventory on the Rise
Despite higher borrowing costs, home construction has been thriving. U.S. Census data shows that new home construction rose by 3% in June, with the number of newly completed homes jumping by over 10% in just one month and 15.5% year-over-year.
The Reality of the Current Market
However, challenges remain for many prospective homebuyers. Despite the positive trends, home affordability is still a significant issue. The median price of a previously owned home reached $426,900 in June, marking the second consecutive month of record highs based on NAR data dating back to 1999.
Real estate trends also vary by region. For instance, New Orleans has already shifted into a buyer's market, according to Zillow data. But as Realtor Leslie Heindel from New Orleans points out, lower home prices in the city can come with hidden costs, such as rising homeowners' insurance rates. "You can definitely get something cheaper here now, but there's a reason for it," Heindel explains.
Looking Ahead
While the path to homeownership is still challenging for many, the market's gradual shift towards more favorable conditions for buyers offers some hope. As home prices stabilize, inventory increases, and mortgage rates potentially decrease, the opportunities for prospective buyers may improve in the coming months.
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