3 Signs of a Cooling Housing Market to Keep on Your Radar

In 2020, mortgage lenders slashed their borrowing rates in response to the economic crisis fueled by the pandemic. That led to a huge surge in buyer demand. And the housing market hasn't really gotten back to normal since.

These days, buyer demand isn't quite as intense as it was when lenders were offering up 3% mortgage rates. But demand is still strong, and homes are still expensive.

If you're looking to buy a home, it could pay to wait until the housing market cools off a bit -- both broadly and, more importantly, in the context of your local market. Here are some signs this may be happening.
1. Homes are sitting on the market for longer.

The typical number of days a home sits on the market is indicative of buyer demand. When homes get scooped up within weeks of being listed, it's a sign the market is red hot. When homes sit on the market for longer, it's a sign that buyer demand isn't quite as strong.

If you're hoping to take advantage of a cooling real estate market, enlist the help of an agent in your area who can keep tabs on this data. Have them track the number of days homes are sitting on the market, so they can inform you when that number starts to pick up.

2. Inventory is growing.

As of late September, there was a 3.4-month supply of available homes on a national level, according to the National Association of Realtors. That's well below the four- to six-month supply that's generally needed to meet buyer demand in full.

When there's little inventory on the market, it's a sign that buyers are active and scooping up homes. When available inventory increases, it's a sign that buyer demand is waning.

So, another factor you'll want to track in the context of your local housing market is real estate inventory. Once you see it start to pick up, you'll know that it may be a good time to begin looking at different properties to make an offer.

3. Home prices are dropping.

Sellers can get away with commanding high home prices as long as buyers remain interested and willing to pay. When home prices start to drop, it's a sign that things are cooling and buyers aren't rushing to make offers on available properties. If prices are trending downward, the time might be right for you to strike.

It's certainly not a bad idea to keep tabs on mortgage rates if you're interested in buying a home. But if your goal is to kick off your search at a time when the market isn't as heated, then you may want to focus more on the factors above.

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