While the spring is usually a busy season for home buyers, falling numbers of pending home sales during February could signal the possibility of a cooling housing market. This is likely spurred by a number of factors, including a lack of inventory for prospective home buyers, as well as rising interest rates. When put together with rising home prices, it is increasingly likely that the housing market may soon begin to experience a correction and start falling.
The Housing Market in February
According to the National Association of Realtors, housing sales fell by 4.1% between January and February of this year, the fourth straight month in a row that home sales have fallen. Overall, this is down 5.4% from February of the previous year, surprising analysts who were expecting home sales to rise. These results are most pronounced in the Northeastern United States, where home sales fell by 9.2% compared to the same time in 2021.
Reasons For Changes in the Housing Market
There are a number of reasons for the current state of the market. First, despite substantial demand for housing, there simply are not many people selling their homes at the moment. This limits the amount of available inventory available for purchase, and puts a bottleneck on the market. In addition, the lack of available housing drives up the prices on even “affordable” housing, meaning that real estate has only become more unaffordable as the months have gone on.
The Impact of Rising Interest Rates
Adding onto all of this are rising interest rates, which drive up the price of getting a mortgage even higher. While rising interest rates are good for mortgage lenders who will see higher returns for their financing, they are bad for potential mortgagees who are seeing mortgages become increasingly expensive. This may be cooling interest in housing, as even small shifts in interest rates can increase the price of homes by thousands, or tens of thousands, of dollars.
How This Affects Real Estate Buyers and Sellers
Right now, it is simply not a very good time to be looking for a house. There is substantial competition for a limited amount of inventory, and what homes are available are being priced outside of the realm of affordability for many prospective home buyers. For home sellers, however, there has rarely been a better time to put your home on the market. So long as your home is in good shape, you can almost certainly find someone to buy your home for a highly favorable price.
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