Housing Market Decoded: Is prime shopping season about to hit?
The pendulum is swinging in buyers' favor this fall. See which three trends could finally give them some leverage.
Decisions in residential real estate are often based on market data — sometimes conflicting, often confusing. Housing Market Decoded, authored by economists and other market experts, helps put the data in context so you can make sense of the numbers.
The last few years have been difficult for would-be homebuyers: record-high prices, record-low inventory and record-fast pending sales — followed by generationally high mortgage rates — have left buyers discouraged.
But those headlines mask three trends that are converging this fall to give buyers some of the best shopping conditions since 2019: The seasonal slowdown, improving inventory and falling mortgage rates.
As regular as the seasons
Every year, the housing market follows a predictable seasonal pattern, with some local variations but a clear rhythm at the national level: Hibernation in midwinter, a surge of demand and supply in the spring, a pullback in demand in midsummer, and ultimately a decline in supply in the fall. Around Thanksgiving, hibernation sets in again.
Right now, in the dog days of summer, we are in that window of time for buyers where much of their competition has melted away but inventory remains relatively high.
Elevated supply and modest demand add up to favorable conditions for those buyers who remain in the hunt. They are less likely to face a bidding war with other buyers, and conversely are more likely to see sellers cut their asking prices or accept offers below list price. Plus, more homes to choose from make it easier to find a good match.
Making progress on the road back to normal
After the onset of the pandemic in 2020, inventory levels plunged by more than half from 2019 to 2021, leaving observers to wonder if this is just the new normal. This year, though, we've seen a steady increase in inventory above and beyond seasonal trends, making progress back toward the "old normal." Early August marked the 40th straight week of year-over-year gains in inventory, according to data from Realtor.com, with buyers finding about 36% more active listings than at the same time last year.
The extra supply is just now beginning to soften prices, which usually peak in early summer. That same Realtor.com data shows that median list prices have begun to dip modestly below year-ago levels, while homes are staying on the market for five days longer. That extra time on the market tends to make sellers sweat even more than the August heat, and will likely lead to more price-cutting in the weeks to come.
Third time's the charm: Are mortgage rates finally falling for good?
In early August, a flurry of economic news rocked the stock and bond markets, and hence mortgage rates. The Federal Reserve kept rates steady, but Chair Jerome Powell opened the door to starting rate cuts at their next meeting in September. Then a bombshell jobs report hit just two days later, which showed rising unemployment and sent an ominous message that the Fed might be a step behind a labor market that will soon need rescuing. Stocks tumbled, and mortgage rates plunged as much as half a point in response to that combination of coming interest rate reductions and potential economic slowdown.
Since the August 2 jobs report, the stock market has regained its footing and mortgage rates have stabilized, as investors balance that data point with other, less dire indicators, like low initial jobless claims. But at the end of the day, homebuyers applying now should expect to benefit from mortgage interest costs substantially lower than they faced in the prime home shopping season of April and May, when 30-year rates averaged 7% or higher.
Mortgage shoppers have been let down by two prior false starts in the data: a few months of declines from a peak of just over 7% near Halloween 2022, and a similar pattern almost exactly a year later but with a higher peak of over 7.75% in October 2023. They say the third time's a charm, and the combination of cooling inflation, a softening labor market and the Fed's signals of rate cuts seem to indicate that rates are headed down for good this time.
A recipe to act now
If inventory and mortgage rates are both moving decisively in buyers' favor, some might ask: Why not wait for even better conditions as these trends progress? First, no one knows how quickly — or how much further — mortgage rates will fall. The last two reversals have humbled everyone who confidently forecasted they'd be lower by now.
What is predictable, though, is that seasonality will swing against buyers' favor before long. Very few new listings will hit the market in the fourth quarter, just like every year. And then in early 2025, the usual wave of springtime shoppers will emerge from hibernation. If mortgage rates do fall further by then, we can expect an unusually big, motivated wave of buyers, bringing back the bidding wars that seem like a distant memory right now.
Jeff Tucker is the Principal Economist for Windermere Real Estate, where he analyzes economic data to explain its impact on national and regional housing markets. He previously spent five years at Zillow, researching housing market trends, authoring reports and presenting to policy makers. The views expressed in this column are solely those of the author.