After spiraling to new heights during the pandemic, the housing market is finally starting to cool. Data on how fast homes have sold over the past decade shows how the market took off in the summer of 2020 and began to wind back down this spring.
Percent of homes that sold within two weeks, starting in Jan. 2012
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“Affordability challenges are the main driver of the housing slowdown,” said Jeff Tucker, senior economist at Zillow.
Buyers are pulling back from the market as monthly mortgage payments climb out of reach for many households. In turn, that’s putting pressure on sellers to cut their prices, accept lower offers or rent their homes rather than list them for sale. Both buyers and sellers are expressing uncertainty about where home values will settle.
A cooling market does not necessarily mean lower home prices — just that they are rising more slowly. The median price per square foot in August was still 9 percent higher than a year ago. But the price growth has slowed: In February prices were 18 percent higher than the year prior.
Just as certain parts of the country saw an explosion of house-hunting interest, triggering intense bidding wars and a shocking run up in prices during the pandemic, many of those same regions are now experiencing a comedown. And the cool-down is not geographically uniform.
“The regional housing markets that got the most overheated have the most to cool off,” said Eric Finnigan, director at John Burns Real Estate Consulting.
Ali Wolf, chief economist at Zonda, said markets that offered an escape and change of scenery during the early pandemic period were a magnet to new residents from around the country. Cities in the Southeast, Southwest, Mountain West, and suburban California were considered pandemic “winners” because of the massive influx of demand. But as interest rates continued to rise, buyers found themselves priced out of the market, Wolf said.
Now those same housing markets are cooling as the number of homes for sale, days on the market and price are no longer on a rapid ascent.
“The markets that grew the most and the quickest were also the markets that became victims of their own success in 2022,” Wolf said.