Three signs the US housing boom is petering out

Waiting to be sold.
Waiting to be sold.
Image: Reuters/Mike Blake
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Homebuyers are dropping out of the US housing market as higher interest rates price them out.

Industry data—as well as anecdotal evidence—point to a sharp slowdown in the housing boom triggered by the pandemic. Average mortgage rates have shot up to more than 5% from around 3% at the beginning of the year. Higher rates already dampened the refinancing boom, and now they’re pushing out first-time homebuyers who don’t have as much equity as existing homeowners or investor homebuyers. Lower housing affordability is pushing half of US homebuyers to tears, according to a recent Zillow survey.

Here are three signs that the housing market is cooling off:

Mortgage applications

Mortgage applications in the US dropped by 6.5% in the week ending on June 3, to its lowest level in 22 years, according data from the Mortgage Bankers Association (MBA) released today.

“The purchase market has suffered from persistently low housing inventory and the jump in mortgage rates over the past months. These worsening affordability challenges have been particularly hard on prospective first-time buyers,” said MBA’s Joel Kan.

Demand for home tours is down

The Redfin Homebuyer Demand Index—which measures requests for home tours from Redfin agents—was down 9% year-over-year at the end of May. As sellers have recognized the slowdown, more than one in five have dropped their prices.

“While we do expect home-price growth rates to decline, we don’t expect prices to fall much at the national level,” said Redfin Economics’ Chen Zhao. “For homebuyers trying to determine the best timing this year, the main benefit of waiting is that there may be less competition as supply starts to build up.”

Houses are staying longer in the market

Meanwhile, homebuilders told John Burns Real Estate Consulting, a homebuilders research firm, that building statistics across the board are declining in the firm’s May homebuilder survey.

One Austin, TX homebuilder said that in some parts of town finished homes are taking a month to sell versus hours previously, and that the “market is definitely correcting.”

A builder in Harrisburg, Pa. reported missing their sales goals by 50% in May, while another, in Nashville, said that most builders are cutting speculative housing starts—houses built without securing a buyer—by 15%. Others are demanding buyers put up higher deposits because higher interest rates are cutting into buyers’ budgets.