Residential real estate market shows some signs of cooling

The main narrative in real estate over the last year has been ever dwindling inventory and ever increasing prices. This has certainly been the case, and the market continues to be very hot. But the most recent data shows that things are starting to cool down.

From April, 2020 to April, 2021 housing inventory decrease every month, for 12 months straight. Overall, inventory dropped 53%. But the data from May and June show that this trend has reversed. According to Realtor.com, listings rose by 3% in May and then a further 9% in June. With the uptick of homes for sale, the frenzied bidding wars and skyrocketing prices of last year will start to cool down.

What’s behind the change? Of course, the price of homes cannot go up to infinity. At a certain point, the typical home becomes too expensive for too many would be buyers, and the market has to adjust.

One factor driving the change is certainly the looming end of much COVID-related government relief. The federal foreclosure moratorium ended on July 31, while the mortgage forbearance program is set to end on September 30. Currently, 1.75 million mortgages are in forbearance under that program. As these end, more homes may come back on the market driving up inventory.

This is still 2021, so things are not entirely back to normal. Interest rates are likely to remain ultra-low well into 2022, if not 2023. The historically affordable mortgages have fueled a great deal of the activity among regular homebuyers and real estate investors. There’s also the unavoidable aspect of demographics. The Millennial age cohort is in its prime first-time home-buying years. So while the market is certainly not back to its pre-2020 status quo, the dramatic price increases and bidding wars are slowly calming down.

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