Three Surefire Signs The Housing Market Is Slowing Down

Navigating the current housing market has been incredibly challenging ever since the pandemic. The pandemic has fueled a housing boom that led to the increase of home prices and low house supply. Mortgage companies are easing the pressure by offering historically low mortgage rates, allowing thousands of buyers to score their dream home.

Although home loans have offset the pressures from rising prices, the trade-off wasn’t attractive enough for potential buyers in a tight financial situation. Many are still complaining about the crazy prices, forcing American home buyers to slow down the housing market on their own. This is evident in the decline of new home sales and waning buyer optimism. Many are also foregoing their plans to buy a property until the housing market has cooled down.

More than a year into the pandemic, real estate experts say the housing market is finally showing signs of slowing down. If it goes on, this will create a perfect opportunity for prospective buyers to finally buy the home of their dreams.

But how true is this? This article will discuss the signs that indicate the pandemic housing bubble is finally cooling off.

Increasing home inventory

In real estate, the monthly supply of inventory (MSI) is the measure of the number of months it will take for a current home inventory to sell, depending on the current rate of home sales. It indicates whether a certain market favors sellers or buyers. On average, a market leaning towards sellers has less than six months of inventory, while over six months of supply means the market favors buyers.

To know the exact MSI, you need to look at the average number of listed homes every month and the number of properties being sold. So when the housing inventory climbs up beyond six months of supply, it’s a sign the real estate market is cooling off.

Real estate is all about supply and demand. In this case, housing demand and supply directly affect housing prices. If there’s a high demand but low in supply, it’s called a seller’s market since the number of buyers exceeds the number of properties on sale. The low housing inventory drives up house prices, paving the way for epic bidding wars.

The opposite happens when the housing market is cooling off. If the homes for sale are more than the number of buyers, it’s called a buyer’s market. The shortage of buyers and an abundant inventory is the perfect recipe for sellers to drop prices.

Listed properties stay longer on the market

In any retail outlet, you’ll always find two distinct sections: clearance and new arrivals. Each section draws a specific group of buyers. Flashy signs that indicate new arrivals often draw shopaholics and big spenders who can pay a premium for the latest and trending items.

Meanwhile, the clearance aisle attracts bargain hunters and practical buyers who are always on the hunt for markdown items and big discounts. These people are willing to buy outdated items in exchange for a lower price.

The same rule also applies to real estate-homebuyers share the same mentality with retail shoppers. Homes that take too long to be purchased are a sign the housing market is slowing down.

Real estate companies determine the status of properties depending on their days on the market (DOM). The term “days on the market” indicates the number of days between the day the seller listed the property on the market and the day it is purchased.

When sellers list their homes for sale, they expect they will sell quickly. So, if the number of days between the listing and sale is few, it signals a high-demand market or the house was too underpriced, making it an excellent value for buyers looking for budget-friendly homes.

Rising price reductions

If an item is too expensive, customers will wait until it goes on sale. That’s exactly what happens in a hot housing market. If buyers cannot afford the listed homes, they will simply suspend the house hunting.

If there are no offers, agents and sellers resort to a price reduction to sell homes faster. More often, they will automatically reduce the price if there are no offers within two weeks.

Housing markets operate differently depending on the city or state. If your area is showing signs of cooling off, make sure to act quickly. Remember, the real estate market operates in different cycles, so you have to take advantage once the opportunity comes. Still, it’s crucial to get a proper handle on your finances to ensure you’re getting what you paid for.