This One Trend Indicates the Housing Market is Finally Returning to Normal

For more than two years, agents, buyers and sellers have been waiting for the housing market to return to normal. There's one major indication it's finally happening: More homes on the market are getting a price cut.

In June 2022, 1 in 7 homes on the market had their prices lowered. That's nearly twice the frequency of June 2021, when only 1 in 13 homes lowered their initial listing price.

What's causing sellers to slash the price of on-market homes? And what other signs should you be looking for when evaluating the state of your local real estate market?

Why Are Sellers Cutting On-Market Home Prices?

In short, price cuts are returning to the housing market because fewer buyers are competing for homes. The biggest reason? Rising interest and mortgage rates.

In 2020, the Federal Reserve slashed interest rates to blunt the economic effects of the COVID-19 pandemic. Those lowered interest rates resulted in rock-bottom mortgage rates, and prompted a flood of buyers to enter the market.

This increased competition turbocharged the housing market. The price of homes skyrocketed; bidding wars on properties and offers over listing price became common.

In 2022, the Federal Reserve has hiked interest rates. Mortgage rates have followed, rising faster than any time in the past 40 years. As the cost of borrowing increases, fewer buyers are entering the market, and many of those who do simply aren't willing to engage in all-out bidding wars.

Many experts believe price cuts signal a housing market correction, not a crash. Keep in mind that from 2017 to 2019, before the disruption of the COVID pandemic, about 1 in every 4 to 5 homes had its price cut while on the market. Price cuts are normal, and likely to become more common so long as mortgage rates increase.

What Are Other Signs of a Cooling Housing Market?

Price cuts indicate that the housing market is returning to normal. But you should consider other vital signs when monitoring your local market, including:

• Mortgage applications: Before consumers can buy a house, they have to apply for a mortgage. Nationwide, the number of mortgage applications has fallen throughout 2022. Keep tabs on your region's mortgage application trends to gauge buyer demand whether the local market is cooling
• Number of home listings: Demand is driven by supply. In a cooling housing market, more homes are likely to be on the market. Some metro areas have more housing supply than others, but all remain affected by the limited number of new homes being built.
• Attendance at tours and open houses: As you host and attend home tours, ask yourself: Does turnout seem to be down? Are buyers making aggressive, cash-heavy offers? If turnout is low and buyers seem to be weighing their options, consider your local market cooling.

Overall, price cuts indicate a housing market that is moving back to normal. But every metro area is different, and every buyer and seller has different expectations. Be sure you have the tools and information to help clients navigate the market, no matter what.

To view the original article, visit the Homesnap blog.