U.S. Real Estate Market Is Starting To Cool Down

Real estate markets are cooling off throughout the U.S. and it isn’t only because of the winter season. According to Forbes, although mortgage rates are still climbing, housing prices are finally beginning to cool off.

“There is a definite shift,” said Lawrence Yun, the chief economist of the National Association of Realtors. “I would characterize the current state as normalizing and not truly a buyer’s market. It was clearly a seller’s market in spring, but now things appear to be more balanced.”

This housing market shift is a return to normalcy and not, as some would believe, a housing market bubble on the verge of bursting.

Since the mortgage crisis in December 2008, the U.S. housing market has grown 11.4%. But, with a low inventory of houses, housing prices have risen hundreds of thousands of dollars to take advantage of the high demand.

Every year, an estimated 35.1 million Americans move. Because of the high demand for housing, many homebuyers have been forced to sign mortgages that are well above their price range. Or, in some cases, they have chosen to buy homes that are fixer-uppers to renovate them at a lower price.

For instance, old siding can reduce a home’s value by 10%. This makes the home cheaper overall for the homebuyer, but it also puts more responsibility into the homebuyer’s hands.

But, a fixer-upper home that doesn’t have all the bells and whistles of more expensive homes also creates a clean slate for the buyer. A homebuyer who buys a house without landscaping can hire their own landscapers and increase their new home’s resale value by 14%.

Unfortunately, not many homebuyers have had much of a choice when it comes to choosing move-in ready homes or fixer-uppers. In fact, it’s this reason why the housing market is beginning to cool down. Homebuyers simply can’t afford any available homes.

In September 2018, up to 465,000 new homes were listed in the U.S. in the 45 largest cities. The prices of these homes, though, haven’t risen as sharply as homes in years past.

Economists estimate that home sellers will continue to have the upper hand in the U.S. housing market for the next few years, but won’t have as much negotiating power as they’ve recently had due to homebuyer fatigue and affordability changes.

“Many markets are tilting back into equilibrium,” said Javier Vivas, the director of economic research at Realtor.com, “but by historical standards, many continue to favor sellers and those trends will continue in 2019.”

“High-cost, overpriced markets and those coming off of significant inventory shortages should see conditions shift more quickly, and feel more buyer-favorable than they have in recent years,” Vivas said.

So what can homebuyers and sellers expect from the future of the U.S. housing market? Experts say a few trends can be expected.

First, although housing prices are beginning to cool down, mortgage rates will still rise and hit 5.5% in 2019. Second, home sellers will need to begin making more compromises when negotiating with their buyers.

“Buyers are pushing back, and they’re saying, ‘Enough,'” says Kelli Griggs, a realtor based in Sacramento, CA. “They’re saying, ‘We’re done, we’re tired, we’re fatigued, we want to buy a home in good condition.'”

Experts also say that home values will still appreciate at 3% even with prices increasing slowly. The demand for entry-level housing will still remain high, although upper-tier markets will cool down.

“While rising costs to buy and a lack of affordable options for the mainstream buyer will limit overall sales in the short term,” said Vivas, “the demand outlook is bright and powered by a larger, growing demographic, with the highest number of millennials entering their home buying years in the next five years.”

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