Cooler Real Estate Market Coming?
This year started with what I termed the “Tsunami real estate market”. The market made incredible leaps and bounds towards a full recovery, with prices surpassing the highs of the boom in some of our local markets. But as the hot summer is coming to an end, we are seeing the first signs that the housing market is cooling off as well.
Why will this probably happen? The huge increase in prices cannot continue at the recent pace. Home prices have risen significantly from their lows only a couple years ago. Mortgage rates have begun to return to their pre-crisis levels, and even all cash buyers notice that change, as higher interest rates means there will be more options besides real estate to “park” their money. .
These factors are some of the reasons why the market is probably beginning to slow down. Let’s be clear, the market is still growing, but the rate has slowed. Many experts say we’re entering another phase in the market’s recovery.
One factor that we see locally is the increase of sellers in the market. It’s simple: higher prices have encouraged more sellers to enter the market, which in turn has increased inventory. More choices means a lesser demand for any one home and as a result there are less offers per property. In our market, there are still multiple offers, but just not as many. Over time, the net result will be a flattening of prices.
For some, these changes could be considered a reason for alarm, considering how quickly prices have risen over the nine months, but many “experts” are classifying this as a healthy change in the market. Frank Nothaft, Freddie Mac’s chief economist, said that this is just a new phase in the housing recovery. This phase is may be slower, but much more sustainable.