Here’s what to know about the state of the housing market, including where supply is headed as housing prices drop.
A record number of home sellers drop prices.
According to Redfin’s housing market update released on May 6, the percentage of home sellers who reduced their asking price reached 15 percent in the month ending on May 1.
This 15-percent share of price-dropping home sellers is a major increase from this time last year when just 9 percent of home sellers cut prices. Redfin (RDFN) says the latest data marks the highest increase on record (the publicly traded real estate brokerage started tracking this weekly data in 2015).
Why the market is still hot despite trimmed home prices?
Redfin news writer Tim Ellis says about the housing market, “Although a growing share of sellers are responding to the palpable drop in homebuyer demand by lowering their prices, sellers remain far outnumbered by buyers, so the typical home flies off the market at the fastest pace on record and for more than its asking price.”
Basically, more individual sellers are decreasing prices, but enough sellers are backing out of the market entirely that it’s leaving the supply-demand imbalance in the sellers’ favor. In fact, the number of active listings shrunk 18 percent YoY in the four weeks ending May 1. This is despite spring historically having the highest home sales of the year.
According to Redfin’s chief economist Daryl Fairweather, “Homebuyers continue to be squeezed in nearly every way possible, which is causing some to take a step back from the market.”
Will demand cool? It might be buyers’ only chance.
Unlike market bubbles, where asset valuations soar without backing, the housing market has been riding a wave of mega-demand. For buyers, the pressure remains staggering. However, there are signs that demand is on its way down. Google searches for “homes for sale” decreased 7 percent YoY for the week ending April 30. Meanwhile, the Redfin Homebuyer Demand Index is down 10 percent YoY for the four weeks ending May 1.
As of May 9, the average interest rate for a 30-year fixed mortgage is 5.6 percent, which is a 52-week high. Eventually, rapidly rising interest rates may quell demand enough to cool asking prices. In the meantime, median home sale prices are up 17 percent YoY for the four weeks ending May 1. This is the biggest leap since August. Now, the median home costs $396,125.
Crash versus correction: What to expect as home sellers drop prices.
As more home sellers trim their asking prices, there's still one main question. Will the U.S. housing market see a crash or just a correction?
Experts suggest a correction is the likeliest outcome. This prediction bears in mind the current market conditions, which are dissimilar to the early days of the 2008 housing crisis. For a mildly optimistic look for buyers, Fannie Mae deputy chief economist Mark Palim told reporters, “We already have a slowdown in both home sales and the rate of home price appreciation.”