The slowdown in the otherwise red-hot real estate boom has been amazingly quick.

The US housing market has skyrocketed during the pandemic as housebound people looked for new places to live, boosted by record-low interest rates.

Now real estate agents, who once reported queues of buyers outside open houses and bidding wars on the back deck, say houses are sitting longer and sellers are being forced to lower their views.

This leaves both potential buyers and sellers wondering where they stand.

“As recession concerns weigh on consumer prospects, our survey shows that uncertainty has entered the minds of many shoppers,” said Danielle Hale, chief economist at Realtor.com.

Here are the key factors behind the upside-down housing market.

mortgage rates

The main driver of the slowdown is rising mortgage rates. The average interest rate on the 30-year fixed-rate mortgage, which is by far the most popular product today and accounts for more than 90% of all mortgage applications, was around 3% earlier this year. It’s now just over 6%, according to Mortgage News Daily.

That means a person buying a $400,000 home would now have a monthly payment about $700 more than they did in January.

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High prices, low supply

The other drivers of the slowdown are high prices and low supply.

Prices are now 43% higher than when the coronavirus pandemic began, according to S&P Case-Shiller’s national home price index. The supply of homes for sale is up 27% in early September compared to the same time a year ago, according to Realtor.com. While that comparison seems big, it’s still not enough to make up for years of lack of homes for sale.

Active inventory is still 43% lower than in 2019. New listings were also down 6% at the end of September, meaning potential sellers are now concerned as they see more homes staying on the market longer.

Real estate wealth decreases when vulnerable equity decreases

Paul Legere is a buying agent at the Joel Nelson Group in Washington, DC. Focusing on the embattled Capitol Hill neighborhood, he said he saw offers jump by 20 to 171 just after Labor Day. He now calls the market “bloated.” For comparison: In March, only 65 houses were for sale.

“This is a very traditional post-Labor Day inventory increase and it will be very instructive to see how the market absorbs the new inventory in about a week,” he said. “Very.”

Inventory is taking a hit nationwide as homebuilders slow production due to fewer potential buyers touring their models. According to the US Census, single-family housing starts fell 18.5% in July from July 2021.

According to the National Association of Home Builders, homebuilder sentiment in the single-family home market fell into negative territory in August for the first time since a brief dip earlier in the pandemic. Builders reported lower sales and weaker buyer traffic.

“Tighter Federal Reserve monetary policy and persistently elevated construction costs have led to a housing recession,” NAHB chief economist Robert Dietz said in the August report.

Some buyers stay tuned

However, buyers have not completely disappeared despite the still expensive selling market and equally expensive rental market.

“The data suggests some homebuyers are finding silver lining in the form of cooling competition for the rising number of homes for sale,” Realtor.com’s Hale said. “Especially for buyers who are getting creative, for example by exploring smaller markets, this fall could offer a relatively better chance of finding a home on budget.”

We could expect falling home prices nationwide, says Yale's Robert Shiller

Real estate prices are finally starting to cool down. They fell 0.77% from June to July, the first monthly decline in almost three years, according to Black Knight, a mortgage technology and data provider.

While the drop may seem small, it’s the biggest one-month price drop since January 2011. It’s also the second-worst July performance since 1991, after the 0.9% drop in July 2010 during the Great Recession.

affordability issues

Still, this fall in prices will do little to improve the affordability crisis caused by rising mortgage rates. While interest rates fell slightly in August, they have risen sharply again this week, marking the least affordable week for housing in 35 years.

Currently, 35.51% of the median income is required to pay the monthly principal and interest payment for the median home with a 30-year mortgage and 20% down payment. That’s a slight increase from the previous 35-year high in June, when the pay-to-earnings ratio hit 35.49%, according to Andy Walden, vice president of corporate research and strategy at Black Knight.

In the five years before interest rates started to rise, the income-to-payments ratio was steady at around 20%. Although house prices rose sharply in 2020 and 2021, record-low interest rates offset the increases.

“Given the large role that affordability challenges appear to be playing in changing housing market dynamics, the recent decline in house prices is likely to continue,” Walden said.

The housing market slows as mortgage rates hit 6.25%

A new report from real estate brokerage firm Redfin showed that while demand from homebuyers picked up a bit in August, the recent rise in mortgage rates over the past week immediately put them to sleep. Fewer people searched Google for “homes for sale” in the week ended September 3 — 25% fewer than a year ago, according to the report.

Redfin’s Demand Index, which measures requests for home inspections and other home-buying services from Redfin agents, showed that demand in the seven days ended Sept. 4 was up 18% from the 2022 low in June, but still year-on-year has decreased by 11% year.

“The housing market always cools off this time of year,” said Daryl Fairweather, Redfin’s chief economist, “but this year I expect the fall and winter to be particularly cold as sales dry up more than usual.”