The red-hot housing market finally begins to cool

But the red-hot market is finally starting to cool down a bit. The number of homes for sale in the country rose 10% in July, according to data released last week by realtor.com. In all, the figure is up 23% since bottoming out this spring.

Increasing levels of inventory is a good sign for buyers who’ve been pitted against one another in one of the most competitive—and tight—housing markets in the nation’s history. Indeed, during the first 12 months of the pandemic, inventory for sale fell by more than 50%. Inventory levels this spring and summer were at their lowest in more than 40 years.

But rising inventory and a cooling market don’t mean home shoppers should expect prices to fall. Industry insiders don’t foresee a 2008-style housing crash; instead, they see a market returning to normal. Over the past year, home prices soared a mind-boggling 17.2%, according to real estate research firm CoreLogic. That company forecasts a more modest 3.2% appreciation in the next 12-month window.

“We were going 120 mph; now we’re going 100 mph. A normal year is 75 mph,” Devyn Bachman, vice of research at John Burns Real Estate Consulting, told Coins2Day. “We need inventory levels to stabilize. That will stabilize the pricing environment as well. And I think we’re heading in that direction.”

What’s going on?

For starters, seasonality is coming back to the market. Around this time every year—with the exception of last year—housing cools a bit as shoppers get distracted by vacations and the restart of school.

“After skipping seasonal trends in 2020, our research projects that housing inventory will follow seasonal patterns in 2021, and begin cooling down…Housing inventory for sale will trend upward, but we are still a long way off from normal inventory levels,” Nik Shah, CEO of Home.LLC, told Coins2Day. Similar to CoreLogic, his forecast shows home appreciation decelerating in the coming months but still moving upward.

This isn’t all driven by seasonality, however. Bachman said the market is cooling as homebuyers start to push back at sky-high home prices. Of course, this was always inevitable: Prices can’t outpace income growth forever.

“You’ve had crazy-strong home price appreciation over the last year, that is unsustainable…When you have that much appreciation, people pause and say, ‘I need to step back and let things cool down,’” Bachman said.

This uptick in housing inventory is welcomed by more than just home shoppers. Many sellers will benefit too. The lack of homes for sale in the U.S. Has persuaded some would-be home sellers to not put their home up for sale. After all, if they sold, the tight market would make it hard for them to find something else. As inventory levels begin to go back up, these potential sellers might finally make the plunge. And that would help to further increase inventory levels.

Even with the recent uptick in homes for sale, inventory levels are still down 42% from pre-pandemic levels. That tight market won’t go back to normal overnight. Not when historically low mortgage rates and a wave of millennials looking to buy are still driving the market forward.

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