There are signs starting to appear indicating the red hot housing market might finally be starting to cool, but what does that mean for you if planning on buying or selling a home?

Have sellers missed the peak of the market?

Can homebuyers expect an end to bidding wars?

In last week’s blog, we discussed whether you should buy now or wait until next year. This week we do a deeper dive into what the signs of a cooling housing market are and how they are likely to impact your buying or selling decision.

Continue reading below, or watch the following video, to learn more;

Cutting Through the Confusion

Considering what the real estate market has done over the past couple of years I can understand if you are feeling confused about making the best decision for you and your family.

There is certainly a lot of conflicting information out there and the media headlines seem to promote more fear than fact. Is it just me or has everything become sensationalized to the extreme?

I simply had to type “real estate” into the search bar of YouTube to receive the following results;

There are red flags, firestorms, and get out now warnings all over the place!

Are we talking about the housing market or a coming apocalypse?

I’m confused by it all and I’ve been doing this every day for 20 years now.

As I said last week, the truth is nobody knows for sure what the future holds. Just look at all the predictions as Covid emerged saying the housing market was doomed, there would be a tsunami of foreclosures, and a crash worse than 2008…nobody predicted the market to take off as it did.

With that in mind, only you can make the decision that’s best for you and your family. My goal here is to share the latest information with you in an effort to make sure you are able to make that decision based on fact, not fear.

The fundamentals of the housing market remain strong. The run-up in prices we have seen has been fueled by a massive imbalance between supply and demand coupled with ultra-low mortgage rates.

Even though the fundamentals are strong, there are signs of storm clouds on the horizon. Without a doubt, the pace of appreciation we have been experiencing is not sustainable and the quick jump in mortgage rates over the past couple of months has certainly had an impact on demand, not to mention 40-year high inflation.

Where is the Market Heading

The magic question! If you were to look at the first video in the screenshot above you see the title “Zillow DOWNGRADES Their Housing Market Forecast.”

That must mean the market has peaked and is heading down, right?

Well, in the article that is being referenced in this video, Zillow does downgrade their housing market forecast based on higher than expected inflation and the rapid rise in mortgage rates, but Zillow still expects home price appreciation of 14.9% this year, DOWN from their previous forecast of nearly 20%.

Considering nobody seems to have a clear crystal ball, the best way I know to spot trends in the market is to keep a close eye on the latest data. Unlike the numbers most often reported, which can be a couple of months old, our friends at Altos Research track every home for sale in the country and publish new market reports each week.

The data in those reports can help us spot potential trends and let us know what to keep an eye on going forward.

Here is a snapshot of current market data for four different markets across the country, Frisco, TX, Phoenix, AZ, Temecula, CA, and Charlotte, NC.

In these market snapshots I am going to focus on 2 distinct data points, one is the Market Action Index and the other is the percentage of homes receiving price reductions.

The Market Action Index uses a variety of data points to determine how fast a market is moving. Think of it like a speedometer that goes from 0-100. The higher the number the hotter the market. Any reading over 30 indicates conditions within the market favor sellers.

Price reductions on listed homes is a natural part of all markets. Normally, we expect to see approximately 35% of homes on the market take a price reduction before going under contract. The housing market has been running so hot that price reductions have been running in low single digits for most of the country.

Frisco, TX

The Market Action Index for Frisco is currently the maximum reading of 100. You can’t get hotter than the market here in Frisco. Homes are still selling for an average of 7% to 10% over list price and multiple offers and bidding wars are still very much a part of this market.

Saying that, price reductions have started to creep up and are currently occurring on 13% of all homes listed. This is a preliminary sign sellers can no longer list their home for sale at any price and expect to receive multiple offers and go under contract. Buyers are starting to be a little more cautious.

Phoenix, AZ

Like Frisco, the Phoenix market is still red hot with a Market Action Index of 99, but notice price reductions have risen to 28% of all homes listed. The median price of new listings has also come down a little, indicating sellers cannot be as aggressive as they were just a couple of months ago.

Temecula, CA

The Market Action Index in Temecula is up slightly from the previous month to 91. The increase appears to be a result of buyers jumping into the market as mortgage rates rose in an effort to lock themselves in before the high Southern California prices made buying completely unaffordable for some. Like Frisco and Phoenix, the number of homes receiving a price reduction before going under contract continues to rise.

Charlotte, NC

Just like the other markets, the Market Action Index for Charlotte is a very strong 95, but price reductions are increasing here as well with 22% of listings taking a price reduction before going under contract.

What’s the Market Like in Your City or Zip Code? Click Here and use the search feature at the top of the page to find out

Bottom Line

While real estate markets across the country remain strong, the consistent increase in price reductions is the first sign we have seen indicating the market might be cooling. The price reductions are not an indication that home prices coming down but are a reflection of sellers who priced their homes too far above the market in the first place in anticipation of where they believed prices were heading.

Rising mortgage markets will have an impact on demand as a 1% increase in mortgage rates lowers the amount a typical buyer qualifies for by approximately 10%.

Considering mortgage rates have risen by approximately 2%, a buyer who was pre-approved for $500,000 in January might find they now only qualify for $400,000. Mortgage rates are currently expected to remain around 5.5% for the remainder of the year.

Overall, we are likely to see the pace of home price appreciation slow down, days on market increase, bidding wars with fewer participants and not on every house, which will be a welcome relief for everyone.

Have additional questions or a specific situation would like to discuss further? Give us a call at 469-296-5230 or email Contact@S2RealEstateTeam.com