U.S. Real Estate Market Is Slowing Down, Based on Recent Data

The U.S. real estate market appears to be slowing down. But how will that affect home buyers going forward?

Recent and numerous reports provide evidence that the U.S. housing market is finally starting to slow down a bit. This comes after a year-long period of frenzied home-buying activity and soaring prices.

But what does this mean for home buyers going forward? Will it get easier to buy a house later this year or in 2022? Here’s a summary of the latest housing market reports and what they might mean for buyers across the U.S.

It’s Official: The Real Estate Market Is Slowing Down

Over the past 12 months or so, the U.S. real estate market has accelerated and intensified like never before. Not even a global pandemic could slow the home-buying frenzy that erupted in cities nationwide. Suddenly, people had a renewed appreciation for homeownership.

On top of that, thousands of people were leaving crowded cities for more spacious suburbs and rural housing markets. These factors, combined with record-low mortgage rates, boosted the U.S. housing market through the second half of 2020 and into the first half of this year.

Which brings us up to the present.

Now, several recent reports show that the U.S. real estate market might finally be cooling down a bit. We’ve seen a decline in home sales, an increase in inventory, and other indicators that suggest the housing market is slowing.

Earlier this month, the U.S. Census Bureau published some updated data regarding home sale across the United States. According to that report, sales of new single-family homes dropped by 6.6% in June compared to May. Annually, sales of newly constructed houses were down by more than 19% compared to a year ago.

Similarly, a July 2021 report from the National Association of Realtors revealed a nearly 2% drop in pending sales for existing homes, from May to June of this year.

So what’s going on here? Why have sales declined in recent months? Why is the U.S. real estate market slowing down after so many months of overheated activity?

Buyers Are Getting Priced Out, and Backing Out

There are a couple of overlapping factors that could be cooling the real estate market in 2021.

First, we have the rapid and unprecedented rise of home prices. In most cities across the country, house prices have risen to all-time record highs over the past year. This trend has caused a sense of sticker shock among many buyers, while pricing others out of the market entirely.

There’s also an ongoing supply shortage that could be affecting home sales nationwide. This is especially true when it comes to newly constructed houses. Builders nationwide are currently grappling with labor shortages and high lumber prices, among other issues.

But it’s the pricing factor, more than anything else, that’s causing the real estate market to slow down in summer 2021.

Surveys show that home buyers nationwide are getting fed up, frustrated, and fatigued by the hyper-competitive nature of the housing market. In many U.S. cities, home prices have risen by double digits over the past year or so. Some of the hottest housing markets have seen annual price gains of nearly 30% — or more — within the past 12 months alone.

You don’t have to be an economist to understand how this could cause the real estate market to slow down in 2021.

Affordability issues have caused an increasing number of home buyers to back out of the market. Due to the rapid run-up in prices, fewer people can afford to buy a house today compared to a year ago. So we’re talking about a slow but steady reduction in the number of qualified and willing home buyers.

Inventory Has Risen in Many U.S. Cities

Inventory levels play a role here as well. And a big one.

For the past couple of years, most housing markets across the country have suffered from severe supply shortages. Plenty of home buyers in the market … not enough properties to go around. You’ve heard it before.

But that appears to be changing. According to a July 2021 report from the real estate data company Zillow, housing market inventory has risen nationwide over the past year.

“For-sale inventory saw meaningful recovery for the second month in a row, improving 3.1% over May,” their report stated.

Of course, real estate conditions can vary greatly from one city or region to the next. There are still some U.S. cities where housing market inventory continues to shrink. But they’re the exception rather than the rule. Across much of the United States, housing supply is starting to trend upward.

Inventory growth becomes even more apparent when you look at the number of newly listed homes in housing markets across the country. According to a recent report from Realtor.com, the number of newly listed properties nationwide rose by 10.9% from May to June. New listings were up by 5.5% year-over-year.

So there’s a lot going on here. Rapidly rising home prices continue to shrink the buyer pool. Inventory is starting to tick upward in many U.S. cities. And it is seems the U.S. real estate market might be slowing down at long last.

What Does All of This Mean for Home Buyers?

Most of this is good news for home buyers in the U.S.

If these trends continue going forward, buyers could have an easier time finding and purchasing a house later this year and into 2022. They might not have to compete as fiercely with other buyers. They might not have to waive their contract contingencies or make offers about the list price.

In other words, we might return to something resembling “normal.”

But we’re not there yet. While the real estate scene does appear to be slowing into the latter part of 2021, most U.S. cities are still experiencing seller’s market conditions. And those conditions could very well carry over into 2022. It will take some time for the supply and demand situation to truly balance out.