Many economists were speculating the market shift to take place last fall. However, interest rates remained low and demand for housing was still ridiculously high at the beginning of 2022. Starting in January, interest rates started to creep up quickly and didn't stop. After hovering around 3.0% for most of 2021, rates went all the way up to almost 6% in the matter of a few months. 4% interest rates didn't seem to faze buyers, but once rates got over 5%, they took notice. Some buyers fell out of the market that were only motivated by super low rates. Others adjusted their budgets to account for the rate hikes. The result has been a slowing of the real estate market over the last couple of months.
When I say slowing, it doesn't mean it's suddenly a buyer's market. Things have only slowed down a little so far. Not every house sells with multiple offers over the weekend, but many still are. More listing price reductions are taking place. Buyers who've had trouble getting offers accepted have more opportunities now. See the chart below for the monthly inventory numbers since 2014. Inventory is a measure of whether the market is a buyer or seller's market. This number is determined by figuring how long it would take to sell through the current number of homes on the market at the current rate they are selling, assuming no new houses hit the market. 5-6 months of inventory is considered a balanced market. We are currently sitting at 0.7 months of inventory as of the end of May. That number should continue to rise over the rest of this year, both due to normal yearly fluctuations, but also relatively as interest rates could go even higher.
Overall, inventory is still very low and multiple offers are still common place. The buyer frenzy seems to have passed its peak though. It will be interesting to see the market shift back to being a little more balanced. We've been used to an extreme sellers market for a long time now. But how high will relative inventory actually go? There is still a lot of demand for housing and the housing shortage is predicted to last for at least a few more years (Business Insider, CBNBC). We may continue to have a seller's market for a while to come, but not to the extent we've seen over the last two years.
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