After a prolonged period of rising housing prices and high demand, economists are now projecting that the housing market is cooling off. Prices began to fall off in April, with as much as fifteen percent of sellers cutting their prices, according to Fortune. This means that, for the first time in years, prices and sales are expected to fall significantly, which could have a serious effect on the housing market.
Looking at the Numbers
For the first time in months, the amount of available inventory has increased, according to Zillow. Meanwhile, the asking price for homes fell, with around fifteen percent of sellers choosing to cut their asking prices in April. As a result, the average price of houses has begun to fall, at the same time that interest rates have begun to rise. This has led analysts to predict that this is the start of a trend that will result in an overall cooling market.
What It Means For the Market to “Cool”
When economists talk about a market being “hot,” what they mean is that there is a large amount of demand for relatively few properties, which drives up the price of real estate. As more properties appear on the market, the demand for each individual property declines, reducing the amount that sellers can ask for their properties. This means that people can generally expect to get less for their property in the future than they would previously.
Why the Market is Cooling
The real estate market is cooling for several reasons. First, and perhaps most importantly, is rising interest rates. As interest rates rise, it becomes more expensive to borrow money, including getting a mortgage for a new house. While interest rates have been near zero for years, the Federal Reserve has recently reversed that policy, leading prospective home buyers and developers to become more cautious about borrowing to purchase real estate. This has caused demand to drop, forcing sellers to drop their asking prices to attract more buyers.
What This Means For You
For people looking to purchase a new home, the cooling market could provide an opportunity to buy for lower prices than you might have previously. For those looking to sell, however, they may need to settle for a relatively low price compared to what you may have gotten even a couple of months ago. However, buyers should be wary of rising interest rates, which could result in more expensive mortgages that you may need to pay off for years to come.
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