A ‘Red Hot’ Housing Market May be Ready to Cool

When you read that for the second month in a row, U.S. properties are, on average, being sold in 17 days, readers would assume that the housing market is blazing ahead, full steam. It looks like the big picture for residential real estate: it’s a seller’s market—and a pretty strong one at that! Among the measures that would lead anyone to agree with that conclusion:

• The 17 Days on Market figure is a full nine days faster than was the case a year ago.
• The median existing-home price of $350,300 in May was 23.6% higher than last May’s prices (and they weren’t exactly giveaways).
• The rise in housing prices was an all-time record.

Even so, a few stray details are hinting that a leveling-off could be in the works:

• The volume of sales slowed in May for the fourth month in a row.
• Some of the latest burst of activity is, as is well known, due to the shortage of available homes. But preliminary numbers show that the pressure buildup from the widespread lack of inventory is beginning to moderate. Per last week’s Zillow.com roundup, “inventories have risen in each of the past three months.” Although that could be expected as part of the normal development of the traditional busy selling season, this year, as the nation emerges from the pandemic, nothing can be counted on to be very ‘normal.’
• As existing home inventories are beginning to turn around, the same is true for new homes. Builders are now beginning to take advantage of a sharp fall in the price of lumber, where future prices had quintupled. As NPR put it, “Now those record wood prices are finally starting to crack, and more builders across the U.S. are able to reach for their toolboxes.”

What does this mean for sellers? It may not mean an instant turnaround to longer average Days on Market, but the gradual easing of the housing inventory crunch should point in that direction. Meantime, buyers continue to be motivated to act while the home loan interest rates remain in historically lowly territory—especially if prices continue to rise, no matter how slowly. For both sellers and buyers, strong reasons remain to consider how today’s prospects compare going forward.