The much-discussed—and, in some quarters, much-feared—housing slowdown may be coming to an end.
The real estate softening that began last summer, marked by a surge in homes hitting the market and fewer sales after years of crazy-high annual price growth, may show signs of reversing course by this fall, say housing experts. That’s a boon for sellers, but not so much for buyers.
“I don’t think we’ll get back all the way to … the frenzy we saw at the beginning of 2018,” says Chief Economist Danielle Hale of realtor.com®. But “it’s certainly a possibility that home sales and prices will pick up, especially if mortgage rates stay low.”
One primary reason for the market revving up again: Mortgage interest rates falling below 4% again. It’s a big incentive for folks to purchase properties now before rates go back up. Just a single percentage point can add a significant amount to a monthly mortgage payment, and potentially tens of thousands of dollars over the life of a 30-year, fixed-rate mortgage. Rates went all the way down to 3.75% as of July 3, according to Freddie Mac.
Moreover, the number of homes available for sale is expected to decline again within the next few months, says Hale. That’s because the growth in inventory is starting to slow, slipping from 2.9% annual growth in May to 2.8% in June, according to realtor.com data. Experts predict it will fall even further this year. When supply is low and demand is high, prices typically go up.
“We’re not seeing as many new listings come up on the market,” says Hale. That could be because homeowners looking to trade up to bigger, nicer residences can’t find anything in their price range.
“It was only 18 months ago that the number of homes for sale hit its lowest level in recorded history and sparked the fiercest competition among buyers we’ve ever seen,” she explains.
Which parts of the country could see the biggest real estate gains?
If mortgage rates continue to stay low, higher-priced cities on the coasts could get the biggest boosts.
Cities such as San Francisco, Seattle, and San Jose, CA, have been among the areas most affected by the slowdown. Many buyers took a step back or were priced out of the market, forcing plenty of sellers who shot for the stars to reduce prices to score a sale. But lower rates could make buying a home a bit more affordable there.
“The slowdown definitely reversed in San Francisco,” says Patrick Carlisle, chief marketing analyst for the San Francisco Bay Area at Compass. “San Francisco just hit new highs in both median house and median condo sales prices of $1.77 million and $1.3 million in June.”
He attributes the turnaround to low mortgage rates, a strong stock market, and some big IPOs (e.g., Uber, Lyft, Slack, and Pinterest) in the area.
However, there’s no telling what the future holds for these real estate markets.
“The markets are much hotter than they were in the second half of last year,” says Carlisle. “But they were not as hot as they were in the spring of 2018, which was the hottest market in 18 years in the Bay Area.”
Is the real estate market heating back up?
So is the nation heading back into a seller’s market?
Prices are still at record highs. The median home list price hit an all-time high of $316,000 in June, according to the most recent realtor.com data.
And even with lower mortgage interest rates, fewer buyers are entering no-holds-barred bidding wars or paying whatever sellers are asking for their abodes.
“There’s still plenty of pent-up demand from years of underbuilding and more millennials coming of age” and wanting a home of their own to raise their families in, says Hale. But “this year’s buyers seem a little more patient. They’re more willing to wait for a good property.”
Fears that the economy could falter and another recession could begin later this year or next have many buyers on edge. Potential buyers want to be sure their jobs are safe.
“We’re past the peak of the business cycle. … [So economic] growth is going to slow down,” says Hale. “When people are a little uncertain about what the economy is going to look like in the future, it’s harder for them to think about buying a home.”
But much of the fate of the housing market relies on mortgage interest rates. If they stay low, buyers have more money to spend on homes. So prices have more room to rise.
“It’s still going to be a good time to sell as prices are near record highs. And with mortgage rates staying low, that might bring in more buyers,” Hale says.
Clare Trapasso is the senior news editor of realtor.com and an adjunct journalism professor at St. John’s University. She previously wrote for a Financial Times publication, the New York Daily News, and the Associated Press. She is also a licensed real estate agent with R New York. Contact her at [email protected] Follow @claretrap