The four key signs to a housing market rebound
Like most things over the past few years, the housing market has experienced its fair share of unprecedented times. From record low rates to record high home prices, it’s been both the best of times and the worst of times—often depending on which side of the homebuying fence you’ve found yourself on and at which moment in time.
What fueled the fire
With historically low mortgage rates from 2020 to 2021, buyers were entering the market by the minute, driving the demand for homes at a time when supply couldn’t keep up. Prospective buyers and sellers watched as homes were swept off the market within hours. Buyers going to great lengths to seal the deal, including bypassing inspections or putting in offers without seeing a home in person.
Home prices began to soar, but despite that, the competition stayed fierce. A higher than usual home price didn’t matter for many when the mortgage rates were so low. It all came down to being able to afford the monthly payment. But as rates have risen over the last two years, many buyers began to be priced out. And now there aren’t as many homes available on the market, in fact, fewer than we’ve seen in years.
With a portion of buyers retreating to the sidelines, will we see the competition cool off? What can we look for in terms of the housing market returning to some semblance of normal? And if you’ve been priced out of the market, when will that all-important monthly payment seem feasible?
While average mortgage rates aren’t likely to reach 2.65% again anytime soon, there are other economic indicators that could allude to a housing market that looks, dare we say, normal? And for this, we look to the Housing Market Recovery Index, a resource developed by realtor.com® that tracks the national housing recovery.
Here’s what to watch for…
Increasing inventory
Even before the onset of the pandemic, inventory had been an issue. Experts were calling for new construction, pointing to shrinking inventory and the potential for demand to outweigh supply. Once the buying frenzy began, inventory shrank even faster, and the predictions rang true.
With fewer homes for sale, the homes that were for sale continued to climb in price. Recent data shows that in 2023, there were just over 4 million homes sold, the lowest number since 1995, while home prices rose 1%, the highest increase ever.
Lawrence Yun, Chief Economist at the National Association of Realtors® (NAR), commented on the alarming numbers. "The record high home prices in most metro markets bring good and bad news. It's terrific news for homeowners who are moving ahead in wealth gains. However, it's difficult for those wanting to buy a home, as the required income to qualify has roughly doubled from just a few years ago."
Throughout the summer, housing inventory has been steadily rising, reaching levels not seen since before the pandemic.
The time on the market
Ask any agent, the days on the market (often referred to as DOM) matter. The longer the home spends on the market, the staler it becomes, leading way for potential negotiating when it comes to asking price. The less time a home spends on the market, the better for the seller. And that goes beyond just selling their home quickly.
After months on the market, people tend to wonder what’s wrong with a home. Whether it’s overpriced from the start, has underlying issues or it just hasn’t found the right buyer at the right time, those critical days on the market construct people’s perceptions of a home.
In the midst of the uber-competitive market that unfolded over the past two years, the days on the market hovered near record lows. In July of 2022, 82% of homes sold were listed for less than a month, with properties typically remaining on the market for only 14 days—the fewest days on market since NAR began tracking the data 11 years ago.
While we don’t want to see homes sitting on the market for months on end, a slight decline could be a welcome change for buyers who have watched homes vanish before their eyes without having a chance to even view a property in person. The key is for this slowed-down pace to be due to increased inventory and a flourishing housing market, not just stagnant listings.
We’ve already witnessed a slight increase in pace, as numbers in June 2024 showed homes spent an average of 22 days on the market. This is up from 18 days in June 2023.
Housing prices leveling off
In order for prices to dip down, the competition needs to cool off. When mortgage rates hit record lows during the pandemic, home prices spiked but still remained affordable from a monthly payment standpoint. As rates have climbed higher and higher, the number of buyers who can afford the higher-priced homes is dwindling, causing contract signings to fall. While this should slow the growth of home prices, the lack of homes for sale has kept upward pressure on what sellers are asking for.
Over the past year, home prices have risen steadily from a similar time the year before. While there are seasonal variations to home prices (they tend to rise in the spring and summer and come down in the fall and winter), they’ve steadily been rising and reaching record heights this past summer.
If home prices start leveling off, it’s likely more buyers will be able to re-enter or enter the market and contract signings will pick back up. If that happens, it’s possible that many buyers will start looking to buy a home. Same Day Mortgage can help you compete, especially against deep-pocketed buyers who may purchase with cash.
As buyers continue to navigate high costs from price gains and mortgage rate increases, sellers will likely need to be more willing to bring their prices down. Which leads us to our fourth economic indicator to be on the lookout for…
Home shopping activity picking up
With an increase in inventory, we could see a slightly more buyer-friendly market and watch as some of the previously sidelined buyers return. Though experts predict the market won’t exactly move away from the seller’s favor anytime soon, a slight cool down could help buyers stay in the game, and therefore help the market begin its rebound.
Mortgage rates will of course play a factor, too. Over the past year, rates reached their highest levels in decades. But as summer turned to fall, they started to come down and were hovering near 6.5%. But the combination of that rate and high home prices have made homeownership unaffordable for many.
In order for the housing market to rebound, we’ll need to see affordability improve. What matters here is the math—what buyers come out with as far as their month-to-month payments. Many buyers don’t care if the housing price is higher or the mortgage rate is lower, just whether they can afford their monthly payment.
Of course, there’s always the opportunity to refinance down the road, so there is definitely a difference in whether a home price or mortgage rate is on the high side, but regardless, the monthly payment needs to be more attractive to get home shopping activity up.
We’ve watched a lot of cause and effect in terms of what happens next in the market. A lack of inventory leads to fiercer competition between buyers, which leads to a seller’s ability to raise their asking price. For home shopping to pick up, the other indicators need to find a healthy alignment.
Whether you’re keeping an eye on the market because you’re looking to buy or you’re looking to sell, keep in mind that timing the market can be a tricky task. And what makes sense for you might not make the most sense for someone else. Try to avoid panic buying or panic selling—panic anything—by surrounding yourself with experts in the field. A good agent and a good loan officer can help you make the best decisions.
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