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Is the Housing Market Slowing Down? The Signs.

In Atlanta and its surrounding suburbs, there is still plenty of competition to buy the perfect starter home, says Jeanne Morgan, a real estate agent with Berkshire Hathaway HomeServices in Georgia. 

But for less than optimal properties, it’s a different story. “Homes that aren’t so perfect—that might need a little TLC, a little elbow grease—I’m happy to say are staying on the market a little bit longer,” she says.

Such news from the front lines of the housing market may be a glimmer of hope for would-be buyers fed up with a hyper competitive market.

Recent data show home sales have slowed as higher mortgage rates and still-rising home prices push some buyers to the sidelines. All eyes are now on indicators of supply and demand to see whether those conditions will last. Several data points can help illuminate where the housing market is headed next. 

New Listings and Price Cuts

In the nearly two decades Deviree Vallejo has been a real estate agent in Denver, she says she had never seen anything like the period from December 2021 to April 2022. “It wasn’t even days on market—it was hours on market,” Vallejo says.

But for buyers who haven’t yet been priced out of the housing market, the selection of homes for sale could be improving now, home-listing metrics show.

Vallejo, who works with Liv Sotheby’s International Realty, says competition in Denver peaked the weekend after Easter. “The automatic brake was interest rates going up as much as they have,” Vallejo says, adding that inflation, the economic slowdown, and a stock market pullback have also helped tame bidding wars.

Today, because there is more inventory, the Denver market is “a lot more buyer friendly—even though it’s still a seller’s market,” she says. “The bidding wars aren’t as crazy.”

Nationally, supply has increased, too, leading to more options for potential buyers. Active home listings have increased on a year-over-year basis for the fifth week in a row, according to Realtor.com data released today. And for the first time in seven weeks, median listing price growth slowed—though it remained well above the historic norm. (Realtor.com is operated by the same parent company as Barron’s.)

“Today’s data offer a hint of relief on the horizon, though a very distant one,” Realtor.com Chief Economist Danielle Hale said. “With more options, home shoppers may see a bit more negotiating room and time to make decisions, even as market conditions continue to favor sellers.”

Similar data on listing prices from Redfin backs that up. During the four weeks ending May 29, sellers dropped asking prices at the greatest rate since October 2019, the company reported.

Those cuts reflect sellers adjusting expectations, Redfin chief economist Daryl Fairweather. “Sellers got into this mind-set that, if the home down the street sells for, say, $500,000, then I’m guaranteed $550,000,” Fairweather said. “Now the market is cooling, that is not true anymore—you really do have to price more conservatively.”

Contract Signings and Mortgage Applications

The rate of existing-home sales will likely continue to slow down, according to gauges of buyer activity like contract signings and mortgage applications.

Contract signings for existing homes fell further than expected in April, according to the National Association of Realtors’ pending home sales index. The gauge, which measures homes in contract that have not yet closed, offers an early read on existing-home sales in the following months.

That wasn’t the only measure of contract signings that declined in April. New-home sales, a government measure of new-home contract signings, declined 16.6%, a more dramatic drop than anticipated.

Applications for a mortgage to purchase a home, as measured by the Mortgage Bankers Association, are another helpful gauge of buyer activity. Those have declined as mortgage rates have climbed. For the week ending June 2, the trade group’s index that tracks the volume of applications for loans to purchase a home descended to its lowest level since October 2016.

“At the application stage, that really is reflecting borrower demand,” Mike Fratantoni, the Mortgage Bankers Association’s chief economist, said of the index in late May. Considering the rising cost of purchasing a home, “it isn’t surprising that we’re seeing purchase applications are down,” he added.

Home Buyer and Builder Sentiment

There is no doubt home buyers have been feeling the crunch.

Of those polled by Fannie Mae in May, only 17% said it was a good time to buy a house, the government-sponsored enterprise reported earlier this week—the lowest share on record.

“These results suggest to us that increased mortgage rates, high home prices, and inflation will likely continue to squeeze would-be home buyers––as well as those potential sellers with lower, locked-in mortgage rates-–-out of the market,” Fannie Mae chief economist Doug Duncan said. The survey results support Fannie Mae’s expectation that home sales will slow through the rest of the year and into 2023, Duncan added.

Another closely watched gauge of sentiment is the National Association of Home Builders’ Housing Market Index, which gauges builders’ confidence in market conditions through a monthly survey of the trade group’s members. The indicator has slid throughout 2022, declining in May to its lowest point since June 2020.

The impact of higher prices and mortgage rates on home affordability is unlikely to subside soon. But for buyers still searching for a home, all of these factors could mean a little more luck—or, at least, a shorter timeline. Morgan, the Atlanta agent, says the house hunting timeline has shortened for buyers from six months to three. “It may not be the perfect home, but it will be close,” she said. 

Write to Shaina Mishkin at shaina.mishkin@dowjones.com

Read More: Is the Housing Market Slowing Down? The Signs.

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