The U.S. Housing Market Has Peaked
But no, we’re not headed for anything even close to 2008.
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If you’ve tried to buy a home in the past two years, you have my most profound sympathies. Your experience has probably gone something like this: You found your dream home online; sent photos around to your family; visited the premises (or decided to buy, sight unseen); got your financial statements in order; smartly offered 10 percent over asking; and learned, several hours later, that no fewer than 831 other people had bid for the same house, which sold to a couple who paid 50 percent over asking, all cash, and cinched the deal with a contract amendment promising to name their firstborn child after the seller.
Yes, the American real-estate market really has been historically hellish, or historically hot, depending on whether you were trying to buy a home or sell one. Within the past year, just about every housing statistic you could imagine set some kind of berserk record. Home prices hit a record high, the share of homes that sold above asking hit a record high, and the number of available homes for sale hit a record low.
But the vibe is shifting. I count at least three signs that the national housing market is about to experience a significant slowdown.
First, as the Federal Reserve raises interest rates to combat inflation, mortgage rates are soaring. In April, the 30-year fixed rate surpassed 5 percent for the first time in more than a decade. As borrowing becomes more expensive, so does buying.
If you take the long view, financing a house is still pretty cheap. The 30-year rate is lower today than it was for any month except one (June 2003) from the 1990s to the Great Recession. But on an annualized basis, rates are rising faster than at any time in 40 years. Buyers seem to have anticipated this moment. In the late winter, one index of housing prices hit its highest month-to-month increase ever, which might suggest that home buyers said “Ah, screw it!” and made ridiculous offers to lock in a cheaper mortgage rate, just before rates took off.
Second, the number of homes for sale—a.k.a. housing inventory—is finally perking up after plunging to all-time lows during the pandemic.
In the hottest markets, such as California and Colorado, the number of available homes is increasing significantly faster than the national average, according to Altos Research, while the share of new listings going into contract “immediately” (meaning within days, or even hours) is declining quickly.
Inventory doesn’t sound as sexy as home prices, but this might be the single most important statistic to watch. “My view has been that the market shift will show up first in inventory, [because] as inventory increases, house-price growth will slow,” says Bill McBride, a real-estate and economics writer.
In 2006, McBride famously called America’s housing bubble when he saw inventory skyrocketing to absurd highs. Today doesn’t look anything like 2006, he assured me. During the worst of the housing crash, inventory as a share of the market was about five times higher than it is today. Instead, McBride said that the next few years will likely resemble the period around 1980. To combat high inflation from the 1970s, the Fed Chair Paul Volcker hiked up interest rates, jolting the economy into a deep recession. The housing market basically stalled until 1982. That sort of stall-out, rather than some crazy plunge into the abyss, is probably our worst-case scenario.
Finally, we can already see these technical statistics—rates, percents, inventory—playing out in the real world. Google searches for homes for sale are falling in major cities, including Boston and Los Angeles. Redfin agents in California say that showings and offers are down double digits since last year. In Minneapolis, showings have fallen rapidly in just the past month.
May and June are historically the most popular months to buy a home. That means that the housing slowdown might be delayed for a few weeks, as the spring surge works its way through the system. But by this summer, sellers expecting dozens of offers in a matter of days could be in for a rude awakening. Before long, flush wannabe homeowners—those lucky enough to be somewhat insulated from rising mortgage rates—will be able to buy without sacrificing the naming rights of their firstborn. Things won’t feel great for everyone. But historically speaking, they just might feel normal.