- The housing market is finally opening up for buyers with ample cash.
- While prices still sit at record highs, mortgage rates are down and demand is fading fast.
- Home construction is also plunging as contractors brace for the market to slide into a recession.
Homes are getting much easier to buy, as long as you can pony up the cash.
Rising mortgage rates, frenzied bidding wars, and wildly insufficient supply hobbled prospective home buyers throughout last year. Homes frequently sold well above their listing price in all-cash deals that closed mere days after the property went up for sale. Those able to find their dream home immediately faced a steep uphill battle to beat other buyers to the punch.
That frenetic market is now fading fast. Many of the headwinds that stopped buyers from snagging a new home are softening. After nearly two years of market fervor and fears of a housing bubble, the red-hot market is cooling. And while home prices remain high, buyers who can afford to close a deal will likely face fewer headaches than they have recently.
Home loans, for one, aren't as pricey as they were in June. The average rate on a 30-year fixed-rate mortgage edged slightly higher to 5.22% in the week that ended August 11, according to Freddie Mac. While that's roughly two percentage points higher than levels seen at the end of last year, it's down from the late-June peak of 5.81%.
The Federal Reserve's interest-rate hikes practically guaranteed that the low rates seen throughout 2021 wouldn't last, but the recent downtrend suggests the massive demand that fueled the housing boom is easing up.
Across the country, about 63,000 home-purchase agreements fell through in July, according to a Redfin report published Tuesday, which shows homebuyers are gaining more leverage as the market cools down. That's equivalent to 16.1% of homes that went under contract during the month. Not only is this rate up from a revised rate of 15% one month prior — it also marks the highest percentage on record with the exception of the first COVID-19 wave in the US during March and April 2020.
"Homes are sitting on the market longer now, so buyers realize they have more options and more room to negotiate," Heather Kruayai, a real estate agent with Redfin, said in a statement. "They're asking for repairs, concessions and contingencies, and if sellers say no, they're backing out and moving on because they're confident they can find something better."
That helped home supply pick up through the summer. The national inventory of available homes soared 30.7% in the year through July, Realtor.com said in a recent report. That's the fastest pace since at least 2017 and amounted to roughly 176,000 more homes actively for sale than in July 2021.
The typical home spent 35 days on the market in July, according to the report. Declining pending listings and slower listing paces suggest time-on-market will increase further in the coming weeks, Sabrina Speianu, economic data manager at Realtor.com, said. That gives cash-flush buyers even more opportunity to avoid bidding wars and find the right deal for them.
To be sure, actual home prices still sit at dizzying highs. The median price for a new home in the US reached a record $440,300 by the end of the second quarter, up 15.1% from the year-ago period. The process of buying a home is getting easier, but it still requires a hefty down payment.
The downturn has led to a slowdown in homebuilder construction, which could constrain supply and keep prices high even as demand tumbles. Housing starts plummeted 9.6% through July to an annualized rate of 1.4 million units, the Census Bureau announced Tuesday. That marked the slowest rate of home construction since February 2021.
Home permits fell 1.3% to an annualized pace of 1.7 million units, reflecting a 10-month low.
It's no surprise, then, that homebuilders aren't feeling great about the housing market's future. The National Association of Home Builders and Wells Fargo Housing Market Index — which tracks homebuilder sentiment — found that builders saw the market as being in a downturn in August, according to a Monday release. That reverses two years of positive readings, with August being the first print since May 2020 showing a slump.
Contractors' souring moods might delay a rebound in home inventory, but the market is generally shifting in buyers' favor. Supply is up, borrowing costs are down, and it's taking longer for homes to sell.
For those with cash on the sideline, the market is much more approachable than it was just a few months ago. Buying a home isn't accessible to every American just yet, but it's moving in the right direction.