9 Obvious Signs the Great Housing Boom is Officially Over

The housing market has been on a tear for the past two years, but there are signs that things are finally starting to cool off. 

That’s good news for potential buyers who have been priced out of the market in recent years. Now may be a good time to take action to relieve financial stress rather than fighting a bidding war for a home.

So what are some signs the housing market may be slowing down? Keep an eye on these indicators, especially if you’re considering getting into the market.

Median home prices are starting to go lower after peaking in May. That month, the median home price was around $430,000, according to real estate website Redfin. In August, the median price was around $406,000.

Prices, however, still have some more downside before the market really cools down. For example, the August median home price is still 6.9% higher compared with a year earlier.

One way national fiscal policy can put pressure on prices is by raising interest rates, which affects mortgage rates. Higher mortgage rates can discourage people from buying homes, leading to a decline in prices.

For the week ending Sept. 29, Freddie Mac mortgage market survey found a 30-year fixed-rate mortgage comes in at an average of 6.7%. That’s 3.69 percentage points higher than a year ago. 

And a 15-year fixed-rate mortgage checks in with an average of 5.96%, which is 3.68 percentage points higher than the same time last year.

Homes that are already built, as opposed to new-home sales, have been seeing a decline recently. The median price of existing homes is around $389,500 compared with a peak price of around $413,800 in June, according to a report from the National Association of Realtors.

Existing-home sales also fell 0.4% in August compared with July and a whopping 19.9% compared with August 2021, when the market was running hot. Lower sale prices could be deterring current homeowners from putting their houses on the market.

During the height of the housing boom, homes were going for above asking prices. To get a new home, potential buyers were waiving home inspections, writing letters to home sellers, or throwing in additional incentives.

But those days may be over as the average sale-to-list-price ratio fell below 100% in August, according to Redfin. That means homebuyers are back to negotiating to get a good bargain as opposed to throwing extra cash above the asking price to land a home.

Certain cities saw massive increases in housing prices, but those increases may be slowing down now. Phoenix, for example, saw a 17.8% increase in prices in August compared with a 30.9% increase in prices for August 2021, according to real estate site CoreLogic. 

San Diego home prices were up 13.7% in August compared with 23.2% a year earlier. And in Denver, home prices increased 11.4% for the month compared with a monthly increase of 19.5% a year earlier.

One of the big pressures on the housing market was the lack of inventory due to not enough homes being built. Last year, high costs for things like lumber and construction materials prevented some builders from adding inventory to the market.

But there may be some letup with more homes breaking ground and being completed. New-home starts were up 12.2% in August compared with July, according to the U.S. Census Bureau.

Overall, the number of homes on the market is increasing, which could lead to more competition and lower prices. Redfin estimates that almost 1.8 million homes were for sale in August of this year compared with only 1.1 million homes on the market in January.

August also had a 3.8% increase in the number of homes for sale compared with August 2021 when the market was steaming ahead.

One of the indications that the housing market was running hot was the median number of days a home would be on the market before a buyer snatched it up. 

In August, a home was on the market for a median of 26 days, according to Redfin. But a year earlier, the median number of days was only 17 days.

Pro tip: If you’re investing in real estate, one important thing to consider is how to price a home right so you don’t have to worry about too many price cuts to get a property sold.

When the housing market was at its peak, it was easy for a seller to get their asking price, and there were even cases of bidding wars with homes purchased for above the asking price.

But things are changing now with 21.7% of homes on the market that have had a price drop in August, according to Redfin. That’s 9.2 percentage points higher than a year ago.

If you’re interested in buying a home now that prices are cooling off, it may be a good idea to start shopping for the best mortgage lenders so you’re prepared with a pre-approval for a loan.

You also may want to start looking at different neighborhoods and the cost of homes in your area to see if you can afford to move or if a change is still out of reach.