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By Aly J. Yale
November 12, 2021
Three House Shaped Thermometers
Jose Velez / Money

This year’s housing market has been high-stakes. Prices skyrocketed, bidding wars were rampant and, thanks to remote work, demand was strong in virtually every market across the U.S. It was a challenging landscape for buyers, to say the least.

But just as the weather has started to cool (a welcome reprieve here in Texas), it seems housing has started to chill as well.

To be clear: That doesn’t mean a buyer’s market is in the cards — nor is there any indication prices will start to decrease any time soon. What the data does point to, however, is a slightly more manageable market than buyers have seen so far this year.

“The housing market has absolutely cooled from where it was this past winter and spring,” says Greg Aponte, head of business intelligence and data science at real estate platform Orchard. “It’s not completely cool — just cooler from what it once was.”

What does that mean if you’re eyeing a home purchase this winter or into 2022? Here’s what you can expect.

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1. Slower home price appreciation

Home prices have increased at breakneck speeds over the last year. In April, Realtor.com data showed prices on active home listings up a whopping 17.2% compared to a year prior. In October, that bump declined considerably, falling to just 8.6%.

Fortunately, experts predict that slower growth will continue as we head into 2022. According to data firm CoreLogic, annual price growth should slow to 2% by next September. Other organizations, including mortgage purchaser Freddie Mac and the Mortgage Bankers Association, predict total 2022 price increases in the 5% to 7% range.

“When looking at those figures, it's easy to say that it's cooling down, but that simply indicates that we're heading into a much healthier housing market,” says Marcus Larrea, broker associate at Palm Paradise Real Estate in Florida. “A healthy, balanced market typically sees appreciation of approximately 3% each year.”

Another good sign is that price cuts — or the number of active listings seeing price reductions before selling — have increased for the last three months. The share of listings with price reductions is now at 2016 levels, according to Realtor.com data.

2. More affordable listings

Starter home listings have seen a much-needed rise in the back half of this year, and according to real estate brokerage Redfin, new listings in the “most affordable” bucket — those with a median price of $126,500 — increased 32% between the third quarter of 2020 and that of 2021. Those in the “affordable” category, with a median price of $210,000, rose 16%.

According to Redfin’s analysis, much of this has to do with mortgage forbearance plans ending for many homeowners. Forbearance was an option offered to struggling homeowners under the CARES Act, allowing some to hit pause on their mortgage payments due to pandemic-related hardships for up to 18 months. As those options expire, homeowners still having financial difficulty are listing their homes to pay off their mortgages.

Again, there’s a caveat here, and while the increase in listings is certainly helpful to would-be homebuyers, the market is still incredibly low on housing supply overall. In fact, Freddie Mac estimates the U.S. is undersupplied by almost 4 million homes.

As Andreis Bergeron, head of brokerage operations at real estate tech company Awning, puts it, “We still have several years before supply will be able to meet homebuying demand.”

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3. Fewer bidding wars

At one point this year, nearly three in four buyers were up against other offers. In October? That share fell to just 59% — a 2021 low.

While that’s still above 2020 (and pre-pandemic) levels, it’s a marked improvement from just a few months ago, and it could help consumers buy a home without resorting to aggressive tactics — like waiving home inspection contingencies and bidding well over asking.

“Most areas of the country have seen a decline in the number of homes receiving multiple offers that are way over list price,” says Glenn Phillips, CEO at Lake Homes Realty. “This behavior has not ended — it’s just not as common, and the aggressive bidding is more restrained now.”

According to data from real estate tech firm OJO Labs, just 41% of homes sold for more than list price last month. In July, the share was 50%.

Another indicator of slightly easing competition? Mortgage application volume is nearing its lowest point since January 2020, and pending sales — or the number of homes under contract — fell in recent months, too. Both indicate a pullback from buyers, at least for the time being.

“Home sales tend to slow down around the holidays, so over the next couple of months, we can likely expect less buyer competition,” says Robert Heck, VP of mortgage at online mortgage marketplace Morty.

4. More days on market

The typical home is taking longer to sell than it did earlier this year. According to Realtor.com, the average number of days on market has increased steadily since June, clocking in at 45 days as of October. This longer selling timeline indicates a less heated market and, in many cases, an opportunity for hopeful homebuyers.

“If you see more ‘for sale’ signs in your neighborhood and they aren’t disappearing overnight, this is a signal of the seller’s market beginning to slow down,” says Kerry Melcher, head of real estate for Opendoor. “Pay attention to when you start to notice for sale signs hanging out for more than a few days without a ‘sold’ sign.”

As with other signs of cooling, though, it’s not a mark of easy buying conditions. Though homes are sitting on the market longer than they were a few months ago, they’re still selling faster than historical norms. In fact, homes sold faster last month than any other October in recent history.

“From a supply-demand balance perspective, the market remains fairly hot,” says Parker Ross, global chief economist at Arch Capital Service Mortgage Group. “The share of homes going off the market within two weeks remains above even 2020 levels, indicating there is still a lot of excess demand.”

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Still — don’t expect a buyers market

The long and short of it: Despite all these positive signs, the market is still quite hot — and a complete turnaround isn’t on the horizon anytime soon.

“We are seeing the market begin to level out while remaining a seller’s market,” says Dottie Herman, vice chair of Douglas Elliman Real Estate.

Mortgage rates should play a big role in that potential leveling out in the months to come. By most accounts, rates are expected to rise as we get into 2022, largely due to changes in Federal Reserve policy. According to MBA, mortgage rates will hit 3.3% in the first quarter of next year, rising to 4% by year’s end. Freddie Mac forecasts a slightly lower 3.7% rate by the end of 2022.

Either way, it’d be a significant hike from today’s 2.98% average mortgage rate, and it could reduce buyers’ purchase power considerably.

“For every 1% rise in your interest rate, your buying power will decrease 9% to 11%,” Larrea says. “That’s a very significant difference in affordability.”

The moral of the story? If you’re eyeing a home purchase, right now may be time to pull the trigger. As Redfin’s chief economist Daryl Fairweather put it, “Time is of the essence.”

“I think buyers definitely have an easier time than they had in the spring, but if they see a home that they like, they should plan on moving quickly,” she says.

More from Money:

Are Super-Low Mortgage Rates Over? 5 Real Estate Experts Share Their Predictions

Frustrated House Hunters Are Giving up on Buying Only to Face an Expensive Rental Market

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