Good Question: What's causing the housing market to cool off?
MINNEAPOLIS -- Across the country, the ever-hot housing market is starting to cool down. According to Redfin, a real estate website, cities along the West Coast are cooling the fastest. That includes San Jose, Sacramento, Oakland and Seattle, where there's a strong mix of prices dropping and inventories rising. But those same trends are being felt in the Midwest, as well.
So what's causing the housing market to cool off? Good Question. Our Jeff Wagner learned finding a new home is getting a little easier but not necessarily cheaper.
If your summer days have been filled with visiting open houses and making offers over asking price, rejoice.
"It is more in the buyer's favor now than it was probably a year ago," said Chris Galler, CEO of Minnesota Realtors.
Is Minnesota's market in a cooldown?
"The cooldown is actually just a slowdown," he said. "We're starting to return back to normal. We had two years, 2020 and 2021, which we were record sales, significantly higher than what they had been in the past. So now we're starting to return back to a more normalized market."
In June, Minnesota home sales dropped nearly 14 percent compared to the same month last year. It's a downward trend Galler said has been happening for about 10 months, but still one of the biggest dips of that stretch.
Part of the blame is the Federal Reserve raising interest rates again in June to slow inflation. It pushed mortgage rates to nearly 6 percent for a 30-year fixed. The constant increase over the past few months is giving buyers cold feet.
According to Redfin, nearly 15 percent of homes that were under contract nationwide in June fell through. The number hasn't been that high since the start of the pandemic when 16.4 percent of home sales were canceled in April 2020.
Did buyers back out of deals when the Fed raised rates 0.75 percent in June? Galler said absolutely.
"Realtors had situations where buyers just couldn't afford it. A 0.75 percent increase in interest rates, that's almost a whole percent. That does throw [buyers] off and so you see some people lose their ability to afford a home," he said.
Less affordability means buyers are being patient. Natalie told us on Twitter "I see the drop in prices, targeting late fall." Trent tweet, "waiting to buy because it will definitely come back down."
While there's no guarantee home prices will suddenly drop, inventory is trending in the right direction
In June, there were more than 12,293 homes for sale, an 8.2 percent increase compared to June of last year. May also saw a 9.9 percent increase in homes on the market compared to 2021. It's a big change when you realize the 10 months prior all had fewer homes when compared to the previous year.
Galler said more homes available proves they're not selling as quickly. But competition remains fierce.
"The best homes in the marketplace are going fast, but there are other homes that are great homes and they're starting to sit a little longer," he said.
So what should buyers do in the weeks ahead? Galler wants them to pay attention to the Fed as it's possible interest rates will go up again this month, which could make home affordability even more difficult for some people. However, if inventory continues to increase, there won't be as many bidding wars for homes.
He added that because inventory is higher along with the housing market slowing down, buyers aren't needing to waive inspections as often as previous months to sweeten their offers.
"Sellers know they're at a high [price] and they want to capture that high, so they're allowing [inspections]," said Galler.
