- The housing market is finally opening up to buyers with plenty of cash.
- While prices are still at record highs, mortgage rates have fallen and demand is fading fast.
- Residential construction is also slumping as builders brace for the market to slide into recession.
Buying houses will be much easier as long as you can afford the money.
Soaring mortgage rates, frenetic bidding wars and a grossly undersupply have hampered potential homebuyers for the past year. Homes were frequently sold well above their list price in all-cash deals closed just days after the property was sold. Those who were able to find their dream home immediately faced an uphill battle to beat other buyers.
This frenetic market is now fading fast. Many of the headwinds that kept buyers from snapping up new homes are easing. After nearly two years of market fervor and fears of a real estate bubble, the red-hot market is cooling off. And while home prices remain high, buyers who can afford to close a deal are likely to have fewer headaches than they have of late.
Home loans aren’t as expensive as they were in June. The average interest rate on a 30-year fixed-rate mortgage rose slightly to 5.22% in the week ended August 11, according to Freddie Mac. While that’s about two percentage points higher than at the end of last year, it’s below the peak of 5.81% at the end of June.
The Federal Reserve’s rate hikes virtually guaranteed low interest rates would not last in 2021, but the recent downtrend suggests the massive demand that fueled the housing boom is easing.
Across the country, about 63,000 home purchase deals fell through in July, according to a Redfin report released Tuesday, which shows homebuyers are gaining more leverage as the market cools. That’s 16.1% of homes signed during the month. Not only is that rate higher than the revised rate of 15% a month ago — it also marks the highest percentage on record, excluding the first wave of COVID-19 in the US in March and April 2020.
“Homes have been on the market longer now, so buyers are realizing they have more options and more room to negotiate,” Heather Kruayai, a real estate agent at Redfin, said in a statement. “They ask for fixes, concessions and contingencies, and when salespeople say no, they back off and move on, confident they can find something better.”
This contributed to the home supply increasing over the summer. The national inventory of available homes rose 30.7% in the year to July, Realtor.com said in a recent report. That’s the fastest pace since at least 2017 and totaled around 176,000 more active homes for sale than in July 2021.
According to the report, the typical home spent 35 days on the market in July. Sabrina Speianu, economic data manager at Realtor.com, suggests that declining outstanding listings and slower listings will further extend time to market in the coming weeks. This gives cash flush buyers even more opportunity to avoid bidding wars and find the right deal for them.
Of course, actual house prices are still at staggering heights. The median price for a new home in the US hit a record $440,300 at the end of the second quarter, up 15.1% from the same period last year. The process of buying a home is becoming easier and easier, but it still requires a large down payment.
The downturn has caused housing construction to slow, which could limit supply and keep prices high even as demand falls. Housing starts fell 9.6% through July to an annualized rate of 1.4 million units, the Census Bureau said on Tuesday. That was the slowest rate of housing construction since February 2021.
Building permits fell 1.3% to an annualized pace of 1.7 million units, reflecting a 10-month low.
So it’s no surprise that home builders don’t have a good feeling about the future of the housing market. The National Association of Home Builders and Wells Fargo Housing Market Index — which tracks homebuilder sentiment — noted that homebuilders saw the market take a downturn in August, according to a release Monday. That reverses two years of positive readings, with August being the first print to show a dip since May 2020.
The bad mood among developers could delay a recovery in the housing stock, but the market is generally shifting in favor of buyers. Supply has gone up, borrowing costs have gone down, and houses are taking longer to sell.
For those with cash on the sidelines, the market is much more accessible than it was just a few months ago. Buying a home isn’t yet accessible to every American, but it’s moving in the right direction.