5 Signs the Real Estate Market is Slowing Down (And How to Navigate It)

The U.S. housing market is undergoing a rebalancing. Visit HomeLight’s 2022 Housing Trends Hub for information on how to navigate a shifting market — whether you’re a seller, buyer, or homeowner.

When it comes to the U.S. real estate market, the last two years have been ones for the history books. They’ve been years where demand far outpaced supply, home values skyrocketed, and bidding wars became the norm.

But, as we navigate through 2022, there are signs that the market is shifting — and a slowdown is upon us. Here are the key changes occurring this year, as well as the impact this changing market is having on homeowners, sellers, and buyers.

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5 signs that indicate a real estate market slowdown

It’s important to remember that a real estate slowdown doesn’t mean the market is crashing — or that buyers and sellers should consider pulling out of the market until things “stabilize.”

The fact is, periods of highs and lows in the real estate market are normal, with the market following a fairly consistent 17- to 18-year cycle that moves through a housing crash recovery, expansion, oversupply of available homes, and then sometimes a recession.

It’s also important to note that many real estate professionals view the current slowdown as a “return to normal” after a few outlier years. “What’s happening is that we’re going back to the norm,” says Frank Procopio, a real estate agent with over 17 years of experience in the Syracuse, New York, and Naples, Florida, real estate markets. “The years 2017 to COVID represented a normal, healthy market.”

“We’ve gotten calls that houses are dropping in value, but that’s not what we’re seeing,”  Procopio says. “What’s happening is that houses aren’t getting three times what they’re worth like they were a year ago — they’re getting twice the amount, instead.”

“There’s a difference.”

This return to normal can be measured by five signs that the market is slowing down. They include:

1. Higher home inventory

Although the number of available homes hit a record low in December 2021, supply has been growing this year. As of June 2022, there were 19% more available homes than the year prior. In some metropolitan areas, the gains have been even larger. In Austin, Texas, for example, supply grew by 145% compared to the year prior. Both Stockton, California, and Dever, Colorado, saw significant increases as well, at 58% and 47%, respectively. The higher number of homes on the market is good news for buyers, who have more options and less competition than they did a year ago.

2. Home price gains are slowing down

For the past two years, home values have been on a fast, upward swing. During this time, homeowners saw their properties skyrocket in value by almost 20 percent — the largest annual home price increase in the history of the Federal Housing Finance Agency’s House Price Index. This led to the average American homeowner gaining $50,200 in home equity in 2021 alone. And while economists don’t see values dropping significantly any time soon, the rate at which home values will continue to rise is beginning to slow down.

3. Price reductions are becoming more common

When the market was at its peak, home price reductions were almost unheard of. Instead, buyers were scooping up homes way over asking price, often without even requiring an inspection. Now, as inventory begins to grow, and the market gets less competitive, this has started to change. In May 2022, 10.5% of sellers reduced the price of their home — up from 6.2% the year prior.

4. Mortgage interest rates are increasing

The U.S. Federal Reserve has raised interest rates multiple times this year in an effort to combat the nation’s growing inflation rate. These rate hikes have made it more expensive for consumers and businesses to borrow money, which has pushed up mortgage rates, as well. In the past six months alone, mortgage rates have doubled — going from 3% to almost 6%.

5. Fewer people are shopping for homes

The combination of rising home values and interest rate hikes has been enough to push some homebuyers out of the market for affordability reasons. As interest rates have increased, the number of interested buyers has decreased, with mortgage applications for single-family homes down 17% in June 2022 compared with the year prior. Overall demand for buying a home is also down, with one agency reporting a 14% decrease in requests for home tours and other home-buying services in June 2022.

How can homeowners navigate the shifting housing market?

As the real estate market continues to slow, the impact will be felt by sellers, buyers, and homeowners. Knowing what to expect from the market, and how it might impact your real estate goals, is the first step in effectively navigating these changes.

According to Procopio, a big part of navigating the market successfully is to understand that the market conditions we’ve seen over the last few years have not been the norm. “The baby boomer population was used to paying 18% interest in the ‘80s, so the cost of doing business doesn’t phase them as much,” he says. “The anomaly was the 2.9%.”

“I really see it affecting Generation X the most, as these are the individuals with families that were going to upsize or make the move for that second home,” he says. “Many of them will now have to really consider whether that’s still an option.”

Sellers: Should I sell my house now or wait?

Despite a slip in buyer demand and a growing house inventory, experts agree that we’re still in a seller’s market. “It’s still a great time to sell, but your real estate agent needs to set realistic expectations,” Procopio says.

According to Procopio, because buyers have more options right now, sellers aren’t in the position to sell their homes for $100k over asking the minute the house is listed. “The days of tossing [a house] up on the MLS and getting 30 offers in an hour are over,” he says. “My 8-year-old could have sold a house in that real estate market.”

Now, he says, sellers need to work with professional real estate agents who understand and are well connected in the local housing market. “This should be their full-time job,” Procopio says. “Buyers have choices right now so they need to understand how to market a property correctly. They have to do the open house, take great photos, and blog about it — they have to do their jobs again.”

“Things are returning to normal, but that doesn’t mean it’s a bad time to sell,” he says. “Sellers are probably still going to get significant appreciation on their home.”

If you’re wondering if it’s the right time to sell your home, HomeLight’s Home Value Estimator is a free tool that can help you get a ballpark estimate of your home’s current value in under two minutes.

Homebuyers: Should I buy a home now or wait?

There’s no doubt that buying a home has gotten progressively more expensive over the last few years. The good news for buyers is that the inventory of available homes is growing, which means they’ll have more options to choose from and less competition than they did a year ago. For buyers who have submitted multiple offers only to have them rejected, the odds are now more in their favor.

As costs rise, however, Procopio believes that it’s important for buyers not to overpay. “While I do think buyers have options right now, it’s really important that they are clear on their long-term plans. Buyers should be asking themselves whether they’re seeking their forever home or whether they’ll be relocating in a few years. Also, what their family plans are. I don’t feel like enough real estate agents talk about exit strategy.”

Homeowners: Is it too late to refinance?

With mortgage rates now higher than they’ve been in the last decade, many homeowners have missed the window to refinance — for now. However, if you purchased your house when interest rates exceeded their current average, or received a higher interest rate because of credit issues, you may still be able to score yourself a good deal on a home refinance.

When evaluating whether a home refinance makes sense, you’ll want to aim for an interest rate reduction of 0.5 to 0.75 points. A 0.75 interest rate reduction would save the average homeowner $310 per month.

If you can afford to refinance from a 30-year loan into a 15-year loan, you can save even more money over the life of your mortgage.

Navigating a return to normal

From the growing inventory of homes to rising interest rates, all signs point to a slowing of the real estate market. And while these changes will impact buyers, sellers, and homeowners as they think through their next move, Procopio does think it’s important for individuals to understand that what we’re experiencing isn’t a doom and gloom scenario, but simply a return to normal. “Five years ago, it would take 60 to 90 days to sell a home, on average,” he says. “The last three years have been abnormal.”

What this means is that it’s perhaps even more important that buyers and sellers are partnered with a qualified real estate agent who is knowledgeable about the shifting market and can help them navigate it as easily as possible. A simple way to find a top agent in your area is to use HomeLight’s Agent Match. All it takes is two minutes and you’ll receive a list of local, qualified, top-performing agents that are well matched to help you achieve your real estate goals.

Header Image Source: (Shep McAllister / Unsplash)