4 Signs That the US Housing Market Has Peaked – and How it Affects You

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After a two-year real estate boom, the market is showing signs of cooling off.

With home prices and interest rates rising this past year, some buyers have made the decision to put their homebuying dreams on hold — creating an environment where mortgage demand has reached its lowest level in 22 years. Similarly, interest in refinancing has also waned, with 75% fewer applications in 2022 compared to the previous year.

These factors don’t just impact buyers and homeowners, but sellers, as well. It’s leaving many in the industry wondering: Has the U.S. housing market reached its peak?

People need to understand that we’re coming off of the Fed trying to manipulate the market. This isn’t happening due to circumstances, but because they’re trying to regulate the economy on purpose…and that’s really different.
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    Kathryn Townsend Real Estate Agent
    Kathryn Townsend
    Kathryn Townsend Real Estate Agent at Owner/Townsend Real Estate
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What does it mean for the US housing market to ‘peak’?

The most significant sign that a housing market has peaked is when high growth rates start to slow — beginning a downward trend. Kathryn Townsend, a top-performing Maine real estate agent with 31 years of experience, believes that at least in her coastal community, the market reached its peak in March. “It was insane and I hope we never see that again,” she says. “We need a more stable market and not the frenzy that it was.”

Top economists agree, with Moody’s Analytics chief economist Mark Zandi believing that the market has reached its peak and is now entering a “housing correction.”

This is something that Townsend actually sees as a positive. “I think home prices will inch downwards until we find a happy medium,” she says. “Seeing things start to stabilize would be best for the market.”

As of now, this slowdown hasn’t impacted housing prices much, but some experts do believe they could start dropping in some markets — particularly those where demand was so high that homes became overvalued. It’s something that Townsend expects to happen, as well. “I think prices are going to go down 10% to 15% this year,” she says.

Others believe that it’s not so much a price drop that we’ll see, but a decline in how quickly house prices grow. So rather than the 20% growth we saw over the last year, we might see those high rates of growth start to subside.

What’s important to keep in mind is that although the market is cooling off, there are no indications that we’re in for the housing bubble burst that occurred in 2008. “People need to understand that we’re coming off of the Fed trying to manipulate the market,” Townsend says. “This isn’t happening due to circumstances, but because they’re trying to regulate the economy on purpose…and that’s really different.”

In fact, one of the top differences between today and 2008 is that more of today’s homeowners have the financial stability to afford their mortgages. Rewind 16 years and things looked differently. Predatory lending had surged and homebuyers were lured into mortgages that they were ultimately unable to afford. They also lacked the equity needed to sell those homes once they found themselves struggling to make their mortgage payments.

For comparison, in the fourth quarter of 2021, 67% of new mortgages went to borrowers with a credit score higher than 760.

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What are the signs that the market is cooling off?

There are a few clear indicators that the housing boom is starting to cool as we move through 2022:

1. Interest rates are on the rise

The U.S. Federal Reserve has raised interest rates multiple times this year — issuing the largest hike in nearly 30 years during its June meeting. These interest rates make borrowing more expensive across the board — and have had an impact on mortgage rates, as well.

2. The inventory of available homes is growing

While there is still more demand for housing than available homes for sale, the gap is shrinking. According to inventory data on Realtor.com, active listings increased by 128,200 last month to 747,500 — the highest single jump in the site’s database history that goes back to 2016.

3. New home sales are down

In April and May 2022, new home sales dropped 19% — their lowest level since the beginning of the COVID pandemic. Existing home sales are also down — declining for the fifth straight month in June 2022.

4. Home prices are softening

The days of houses selling for $100k over asking price seem to be ending, with more than 10% of sellers lowering the sales price on their homes in June 2022.

According to Townsend, these signs aren’t necessarily a bad thing. In fact, she views the cooling market as an “area of opportunity” — especially for buyers.

What does this mean for home sellers?

The real estate market may have peaked, but houses are still in high demand. However, with home prices starting to dip in some areas, sellers will need to adjust their expectations, as they may not get bombarded with attractive offers on day one. They also may need to be a little more realistic when pricing and marketing their home.

“If they’re pricing their house right, [sellers] still might get multiple offers at or slightly above asking,” Townsend says.

Sellers should also expect the return of inspection contingencies, which fell by the wayside for much of the last few years. That means that properly cleaning, staging, and making minor repairs is becoming increasingly important again.

What does this mean for homebuyers?

The combination of rapidly rising housing prices and mortgage rates has caused some homebuyers to back out of the market because they’re either getting priced out of homes or they’re waiting to see if the market stabilizes. “There’s a notion that prices are going to go down, so people are waiting,” Townsend says.

Yet despite the rising costs, which the National Association of Realtors (NAR) calculated is 55% higher than it was a year ago, Townsend believes that buyers are in a better position to buy a home than they were then. “I think there’s an opportunity for people to buy a place right now and not pay a crazy amount for it,” she says.

Who she’s thinking of, in particular, are those buyers who put in 10 to 15 offers on a home in the last two years and consistently lost out due to all-cash offers that were coming in way over asking. “If you didn’t have cash, you weren’t buying,” she says.

“Buyers now have the opportunity to go in and buy a house at a much more reasonable price and actually have their offer accepted. They’re also now able to get a building inspection.”

These buyers will be paying a higher mortgage rate than they would have paid last year, but Townsend says there are options there to consider, as well. “If buyers are worried about the rate, they can get a variable rate and refinance later on,” she says.

What does this mean for homeowners in general?

As mortgage rates increase, the number of homeowners looking to refinance their homes has dropped. In fact, mortgage data firm Black Knight found that refinance activity dropped by 80% in the first quarter of 2022.

If you can’t reduce your interest rate substantially (many experts suggest a savings of at least 0.75 points), then moving forward with a refinance doesn’t make sense. If taking advantage of their home’s equity to fund major home repairs or pay off debt is the goal, homeowners may want to look into a home equity loan or home equity line of credit instead.

Remember: A cooling market isn’t the same as a market crash

Although the last time the real estate market peaked it was followed by a major housing crash, experts agree that we’re not looking at a repeat of 2008. Rather, what we’re experiencing is a return to normalcy after a few very competitive (and otherwise unusual) years in the U.S. real estate market.

So, whether you’re in the market for a new home — or are looking to sell your current one — the fact that the market has peaked doesn’t indicate that you’re entering the market at the wrong time. All it means is that you’ll want to make sure you have an experienced real estate agent by your side who can help you navigate the market and make the best homebuying or selling decision for you and your family.

HomeLight’s Agent Match will help connect you with an experienced buyer’s or seller’s agent in your area.

If you’re a buyer concerned about affordability in this changing market, HomeLight’s Home Affordability Calculator and Down Payment Calculator can help you better understand your current homebuying power and out-of-pocket costs.

For sellers, the Best Time to Sell Calculator can help you determine whether it’s the best time to sell in your area, and our handy Net Proceeds Calculator can help you estimate much you might make selling your home.

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