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5 Signs the Housing Market Is Cooling to a New Normal

5 Signs the Housing Market Is Cooling to a New Normal
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Home.com Staff

Homebuyers may have a little more elbow-room in the coming months as key housing indicators suggest a market cooling from white to red-hot.

The most recent metro housing data from Redfin shows signs of a cooling market. Home-sale prices are levelling off, inventory is recovering, and the overall number of homes sold is decreasing. This slowdown is likely due to a combination of buyer burnout, seasonal housing patterns, and the spread of the delta variant.

Although a return to pre-pandemic conditions is unlikely, here are 5 signs the housing market is cooling off and a “new normal” is on the horizon.

1)  National median days on market increased for third straight week

The national four-week rolling average for median days on market is increasing after six months of decreasing. The national median is now 16 days after bottoming out at 15 days in June.

Sixteen days is a very short period of time. The lowest national median days on market between 2012 and 2020 was 31 in June 2018.

The uptick follows a seasonal pattern as the housing market typically peaks in June. But median days on market didn’t bottom out until November in 2020, so even a return to normal season patterns is notable.

2) National median sale price flatlined in July

For the first time since mid-February, the national median home-sale price didn’t increase. Instead of another record, the late-July $364,000 mark remained steady through August 1.

This is perhaps the best news for homebuyers, as it most directly affects their bottom line. If this is indeed the peak for 2021, it’s later than the typical June seasonal peak. However, it’s notable that the national median price didn’t reach its height until November 2020.

3) Price drops have been on a steady incline

The percentage of active listings in which sellers have reduced prices has been increasing at a rapid clip since April. At the beginning of 2021, just 2% of active listings had price drops. This figure remained low through the spring and summer, before ascending to 4.8% for the four-week period ending on August 1.

After being a full percentage point below pre-pandemic levels for most of the year, price drops are now on par with 2018 and 2019. This figure typically peaks in September as homebuying season wanes.

Related: Four Charts that Show the Pandemic Home Building Shift

4) Inventory has been increasing since June

One of the driving factors for competition and rising prices is a long-standing shortage of housing inventory. During June, the national supply of housing hit a 9-year (and presumably record) low of 6.7 weeks of supply.

Housing inventory is typically measured in months supply, which predicts how long it would take to sell all of the houses on the market if no additional supply was added.

A six-month supply is considered balanced.

After bottoming out in June, the four-week rolling average of housing supply has increased in each of the last four weeks. In the period ending on August 1, the market had a 7.7 weeks — almost two months — supply of inventory.

This figure typically bottoms out in June and increases to a peak in December.

5) Pending sales have been decreasing since May

Pending sales peaked in the four-week period ending on May 30 and — aside from a hiccup around July 4 — have been on the decline since. This is on pace with the typical season pattern, but a big change from 2020.

In April 2021, the number of pending home sales was 94.67% above the 2020 figures — nearly double. But in the most recent period ending August 1, 2021 pending sales are just 3.41% above 2020’s.

A return to a new normal

For a while, it seemed there would be no end to the 2021 housing market’s record-setting pace. But, unlike 2020, this year seems to be following seasonal patterns and headed for an autumn cool off.

Heading into the slow season may allow homebuyers some breathing room, but the market will be operating at a new normal. It would take a massive correction for home prices, inventory, and days on market to return to pre-pandemic levels.

Instead of holding their breath for the improbable, buyers that couldn’t compete at the peak of the 2021 market may find a foothold as the market heads for a seasonal cool down.

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