Although it’s still expected to favor sellers for the foreseeable future, several key indicators suggest the wild housing market may soon start to cool off. At least a little bit.
Recent data from Seattle-based Redfin Corp. found the number of homes newly listed for sale surpassed 2019 levels during the four weeks that ended July 4. That’s the the first time this year that’s happened.
Homebuying demand has also recently — somewhat — tapered off, according to pending sales data, Redfin’s Homebuyer Demand Index and Mortgage Bankers Association‘s survey of number of mortgage applications.
Realtor.com found similar indications in its June housing market report. Newly listed homes were up 5.5% nationally year over year, and 11.7% higher in large metros in that same time period.
Although pending home sales were up 17% year over year, Redfin says it was the smallest increase in almost a year, since the four-week period ending July 19, 2020. Pending sales were down 6% from the four-week period ending May 30, compared to a 3% decrease in the same period in 2019.
Daryl Fairweather, chief economist at Redfin, said this is a new phenomenon in the current housing market, which has seen skyrocketing prices, bidding wars and not nearly enough inventory to keep pace with demand.
“It seems that we’re at a turning point in the housing market, where prices have gone up so much that buyers are backing off and home sales are starting to get sluggish,” Fairweather said. “Sellers are noticing this and are wanting to sell at the top — they feel like this is as good as it gets.”
It’s being observed nationally but, Fairweather said, pandemic-trendy metros — rural or suburban areas that people moved to to get out of dense cities — could be the first places to see home prices level off. Areas in rural Pennsylvania, for example, are already past their housing-price peak, Fairweather said.
Redfin found in its Homebuyer Demand Index, which measures requests for home tours and other services from company agents, demand fell 1.2% week-over-week in the week ending July 4.
Of course, the market remains heavily tilted in sellers’ favor, with median home prices 22% higher where they were a year ago and homes lasting, on average, just 15 days on the market. But, Redfin found, days on market has been flat in the past month and actually declined for 18 consecutive weeks between February and June.
It’s not apparent in the data yet but, Fairweather said, she believes home price growth will soon begin to level off.
Realtor.com says the median national home price for active listings was $385,000 in June, a 12.7% increase over last year. It’s the second month in a row where annual price increases have slowed. May’s annual median home price growth rate was 15.2%, compared to April’s 17.2% year-over-year increase, according to Realtor.com.
The Mortgage Bankers Association reported on July 7 that, for the second consecutive week, mortgage application activity fell, reaching its lowest level since the start of 2020. The MBA tracks mortgage applications activity on a weekly basis.
It found, for the week ending July 2, the Market Composite Index — which measures mortgage loan application volume — decreased 1.8% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, it decreased 2% compared with the prior week.
Joel Kan, associate vice president of economic and industry forecasting at the MBA, said he still expects an overall increase in purchase origination volume in 2021.
He said, between February and now, mortgage purchase applications have generally declined but loan balances have remained high.
“Part of that is because there are more transactions happening in higher-priced tiers, less in lower-priced tiers, which is where we’re seeing a lot more of the inventory issue surface,” Kan said
There are still many factors, including millennials buying their first homes, that continue to be in play and will support longer-term growth.
But, Kan said, with home price appreciation at its current level, more people may be more willing to list their homes on the market.
“As listings increase, as we see more homes come back on the market, there tends to be some sort of a ripple effect,” Kan said. “You need buyers and sellers to trigger more housing transactions.”
Fairweather said while home price growth could start to moderate, she expects apartment rents to be on the rise after holding steady through the pandemic. That’s been observed by other industry watchers, including Yardi Matrix, which recently revised its multifamily rent forecast to include bigger year-over-year hikes in several key metros.
The tight for-sale housing market has helped propelled a subsector of the rental housing industry: build-to-rent development, being done by traditional apartment developers and homebuilders across the U.S.