It’s official, the housing market has cooled off, but it will take some time for it to become a buyers’ market.
“Now we have seen several months of data that tells me the housing market is softening,” said Cheryl Young, a senior economist at Trulia.
Existing home sales have peaked, according to Michelle Meyer, an economist at BAML, and a number of experts have adjusted their forecasts downward for key housing indicators, including home sales and single-family housing starts. Even home prices, which have been heading north, are rising at a slower clip.
Last month, Freddie Mac said it expects home sales (existing and new) this year to come in below 2017. It projects total home sales to decline 0.9% to 6.07 million.
“The spring and summer home buying and selling season ultimately ended up being a letdown, despite a faster growing economy and healthy demand for buying a home,” said Freddie Mac Chief Economist Sam Khater in a press statement.
Meyer recently noted that existing home sales peaked in November 2017 at 5.72 million. Existing home sales remained unchanged in August, as rising mortgage rates and stagnant wage growth held back sales. New homes sales, a smaller portion of the market, recorded a small uptick of 3.5% but are still well below levels prior to the Great Recession.
In previous housing cycles, a peak in existing home sales is usually followed by a peak in home price growth, according to Meyer, referencing the peak in existing home sales and home price growth in September 2005. But this time around that’s probably not going to be the case.
Low inventory levels
“An outright contraction in home prices seems unlikely,” said Meyer, adding that she does think the rate of home price appreciation will slow. “Remember, this is not a normal market. The supply of homes on the market for sale has been quite low.”
Historically low inventory levels have been choking overall sales and putting pressure on home prices. The number of homes for sale in the U.S. has fallen for three straight years, eight of the past 10 years, according to the National Association of Realtors.
But relief may be on the way. Last month, the NAR said inventory appears to finally be leveling off — declining only 0.2% from a year ago. Trulia recently predicted that inventory is close to hitting a bottom. According to Trulia, the total number of homes available for sale in the third quarter was the highest since 2018 but lower than it was a year ago. Inventory fell by 2.5% in the third quarter — the smallest annual decline since the beginning of 2015.