“Things are still good, they’re just not frenzied anymore. Which, to be honest, frenzy in the housing market never really leads to good behavior,” Devyn Bachman, vice president of research at John Burns Real Estate Consulting, told Fortune.
As Fortune reported last week, increased inventory is good news for homebuyers who’ve been pitted against one another in one of the most competitive housing markets in the country’s history. This steady uptick in inventory, Bachman said, is a clear sign that some of the crazy is beginning to leave the market. It has also coincided with a slowdown in home price appreciation.
2. Homebuyers are finally pushing back at record prices
CoreLogic, a real estate research firm, finds at one point this summer home prices appreciated 17% year over year. But in recent weeks, homebuyers are finally starting to balk at record prices.
“When you’re talking 17%, that is four times national income growth. That’s not sustainable, that’s not healthy,” Bachman said. This buyer pushback was inevitable and continues to spread across the nation, she added.
But the cooling in the market isn’t only a result of buyers’ fatigue. It’s also because seasonality is returning. Historically, the housing market cools in the summer and fall as buyers get absorbed into vacations and the return of school. But that didn’t happen last year as vacations were postponed, and many schools went online. This year, that seasonality returned in a big way.
“It’s seasonality on steroids this year, because you locked people in their homes for a year and half, and finally people took summer vacations,” Bachman said. That return of seasonality has given inventory some breathing room to finally rise.
3. Forecasts don’t predict home prices falling
While the market is cooling, it doesn’t mean we’re headed for a crash. In fact, forecasts don’t even show prices falling. CoreLogic forecasts a modest 3.2% home appreciation over the next 12 months. If that comes to fruition it would still mean relief for home shoppers—given prices jumped 17% in the past year.
“What we see is a more normalized pricing environment going forward, one that is not nearly as frenzied as what we’re seeing today. But by no means are we calling a pricing correction,” Bachman said.
4. International homebuyers are coming back
Amid the pandemic, international travel fell off a cliff. Subsequently, international homebuying also fell. That had a negative impact on international markets like Manhattan and San Francisco.
But in recent months more of those buyers, particularly from Europe, are expected to come back as international travel begins to recover, Anthony Hitt, CEO of Engel & Völkers Americas, told Fortune. He expects that to continue to aid in the recovery of luxury markets in big U.S. cosmopolitan areas.
5. Mortgage rates remain historically low
At the onset of the economic crisis, the Federal Reserve turned to one of its most powerful tools: lowering interest rates. For much of the past year, the average 30-year fixed mortgage rate has been below 3%—something that attracted a wave of homebuying and mortgage refinancing.
But the combination of an improved economy and rising inflation is increasing the odds that the Federal Reserve will begin to raise rates.
Freddie Mac forecasts that by the end of 2022 average mortgage rates will climb to 3.7%—up from its current 2.87%. Of course, any upward movement in mortgage rates puts negative pressure on the housing market.
What does the end of the forbearance program mean for the housing market? To answer that question, Fortune recently asked researchers at Home.LLC to run the numbers. Their forecast finds the end of the program could cause housing inventory to rise another 11% this year.