Is the worst nearly in the rearview mirror for homebuyers?

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Published Date 9/17/2024

If Bob Dylan was right about "The times, they are a-changin’,” it’s time at last to apply that to the real estate market. Just a few years ago during the pandemic, the housing market was a dizzying whirlwind, with home prices soaring and buyers scrambling to snag properties before they were snatched up.

But as the old saying goes, what goes up must come down - and now, it seems the tides may finally be turning in favor of homebuyers. CNN’s Samantha DeLouya quotes Zillow’s chief economist Skylar Olsen: "June, in particular, has started to show the housing market slowing down in favor of buyers.” He says that after a prolonged period of seller's market dominance, the pendulum appears to be swinging back towards a more balanced, if not buyer-friendly, landscape.

A bit of recent history: The catalyst for this shift appears to be a combination of factors, including rising mortgage rates, declining home prices, and a gradual increase in inventory. When the Federal Reserve began aggressively hiking interest rates to tackle inflation, many expected housing demand to take a hit. And that's exactly what happened - but with a twist.

Rather than buyers disappearing entirely, more homeowners opted to hold off on listing their properties, hoping to keep their pandemic-era low mortgage rates. This, coupled with an existing housing shortage, led to home prices surging even higher, creating a frustrating double whammy for prospective homebuyers.

Recent reports, however, show that nearly one in four home sellers offered price cuts in June - the highest level for that month since 2018. Additionally, average 30-year fixed mortgage rates have fallen to their lowest level since mid-March, providing a glimmer of hope for those looking to secure more affordable financing.

"We're seeing a slow shift from a seller's market to a buyer's market," explained Lawrence Yun, chief economist at the National Association of Realtors. Homes are now sitting on the market a bit longer, and sellers are receiving fewer offers, while more buyers are insisting on home inspections and appraisals. Inventory is also on the rise, a clear sign that the playing field is starting to level out.

The waters are not calm yet, however. As real estate broker Rick Sharga, pointed out, "We're sitting today at probably, if not the worst affordability ever, really close to the worst affordability ever — so we almost have nowhere to go but up."

The good news is that home price appreciation is starting to slow, with annual growth at just 3.2% in June and monthly growth decelerating to 0.6% - the slowest June price appreciation since 2011. And with the potential for the Federal Reserve to begin cutting interest rates as early as September, the future may be looking brighter for homebuyers.

"It will likely entice some homeowners to list their properties and move on, which they haven't been doing with rates as high as they are," Sharga explained, suggesting that lower mortgage rates could free up much-needed housing inventory.

Of course, the housing market is inherently local, and not every area is experiencing the same trends. As New Orleans Realtor Leslie Heindel pointed out, lower home prices in the city don't tell the whole story. "When the pandemic started, everything went crazy. Something would hit the market and you would have 20 offers in one day. And then insurance rates changed here and that was it for us." Skyrocketing homeowner's insurance rates have created an additional, often unexpected, cost of owning a home in a given risk-prone area.

So while the overall housing landscape may be shifting in favor of buyers, it's clear that the path to homeownership still has its fair share of obstacles. Still, a bit of good news is always better than none, even if Bob Dylan might not think so.

CNN/TBWS

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