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Call it the mid-May housing market meltdown.
For Pamela Grunstein, a real estate agent in Westchester County, New York, it felt like the housing market went from hot to cold in the span of only a week. The phone, which often had been ringing off the hook, she says, began to ring just a few times a day. Open houses had been attracting dozens of prospective buyers, and suddenly, some had zero traffic.
It’s no coincidence that in mid-May, when Grunstein noticed the housing market was shifting, mortgage rates also spiked to the highest level since 2009. Increased rates coupled with record-high home prices helped push the average mortgage payment up more than $500 per month, a 37% jump since the start of the year.
Like Grunstein, many real estate agents across the country say they have seen housing market activity suddenly come to a halt. So, what happens next?
Housing Market is Facing a ‘Rebalancing’
The last time the housing market contracted in 2007 to 2008, it was dramatic and severe. Millions of Americans saw their homes plunge in value or lost their home to foreclosure. The 2008 financial crisis affected the housing and mortgage market for years afterward. And while home prices and sales have certainly gone up in recent years, new home building activity never recovered to the highs seen pre-2008—meaning the housing supply is extremely limited right now.
In 2005, new residential home starts reached a high of more than 2 million units compared to 1.6 million units in 2021, according to the U.S. Census Bureau.
But the current slowdown is nothing like the last one, experts say. Right now, we’re experiencing a “rebalancing,” says Len Kiefer, deputy chief economist at Freddie Mac.
Demand has been so strong and supply so lean that the market has been tilted decisively in favor of sellers, Kiefer says.
That supply-demand imbalance helped push the national median home price to more than $400,000 in May—the highest on record, according to the National Association of Realtors (NAR). There were only 1.1 million homes for sale at the end of May, which would represent a 2.6-month supply at the current pace of sales. Before the pandemic, a six-month supply of homes for sale was considered a sign of a healthy, balanced housing market.
But such overheated conditions can’t continue forever, and NAR’s report confirms that. Sales fell for the fourth straight month in May and were down 8.6% from a year ago.
“We’re at a pivotal moment for the housing market,” Kiefer says.
One important point: After the 2008 subprime crisis, builders constructed so few new homes for so many years that a 2020 Freddie Mac analysis found the U.S. was short nearly 4 million homes.
“We are undersupplied dramatically” to this day, Kiefer says, and that should keep housing market activity humming, even if it’s at a less-frantic pace compared to the last few years.
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The Housing Market is Cooling—What That Means for Homebuyers
Of course, while it’s helpful to have economic context for the current market, individual decisions about buying and selling happen now—not in the long run. With that in mind, here are four tips on how to strategize for the shifting housing market:
1. Be Patient
Most housing experts say buyers should take their time rather than feel pressured to rush into a deal. Albeit, this can be tricky when the housing market could be inundated with bidding wars over limited supply.
Drew Coleman, owner of Opt Real Estate in Portland, Oregon, says the current slowdown follows “a market that’s been so overheated, it’s [like] taking a white-hot flame down to a red-hot one.” In the metro Portland area, there’s still a limited supply of homes to buy, Coleman says. But with slightly fewer buyers on the prowl, the market has opportunities for those who stick with it.
“Over the past few years, people would buy a home with a rate they liked but a price they did not,” Coleman says. “Now prices may be a bit more palatable, and rates are not forever. If you can afford the payment today and possibly get a lower payment later, that’s a good place to be in.”
2. Be Creative
While some markets are seeing a sudden housing market slowdown, other areas are not. Such is the case in Charlotte, North Carolina.
The supply of homes for sale in the city was down roughly 25% in May compared to a year ago, pushing the median price up more than 20% in the same time period, says Peter Hitchens of Hitchens Appraisal Group, who’s been appraising houses in Charlotte for 40 years. That means buyers have to be “unorthodox,” he says.
Try to find “houses that have good bones that need maybe a facelift, and see if you can get a good price on it,” Hitchens advises. Another strategy he gave is to “drop a note in the mailbox” of a house that looks distressed, offering to buy it.
3. Work with Experienced Professionals
Teaming up with a good real estate agent is almost always smarter than going it alone, particularly when the market is tricky. Realtors are familiar with local properties and neighborhoods, and they often know the agent on the other side of the table, which can be invaluable.
See: How To Find A Real Estate Agent
Also, make sure you’re working with a lender or mortgage broker who you’re comfortable with, and be in frequent contact with that person. Prices and rates are changing constantly, which means what you can afford is likely also changing.
A good mortgage professional can help you consider financing options or programs you may not be aware of. And don’t forget to consult more than one.
Related: Best Mortgage Lenders
4. Trust Your Gut
The advice and guidance you can get from housing professionals is invaluable, but it’s also your finances, family and home that are on the line. So make sure you’re very comfortable with your final decision on buying a house.
For example, if you buy a home while prices are high, make sure you want to live there for a while in case prices flatline or fall in the coming months or years. Conversely, it’s important to periodically analyze your housing costs, meaning whether you’re better off paying elevated rental rates or buying a home in a high-cost housing market. If you’re currently a homeowner and decide to sell now while the market is cooling—even if temporarily— it’s important to weigh whether the timing is financially right.
Local housing professionals can help walk you through costs and options.
“This is a time of nervousness,” says Coleman. “Twists and turns are confusing.”
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