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Is the Housing Market Cooling Down? Here's What This Means for You

While we can always expect summertime to crank up the temperature, the U.S. housing market—which was blistering hot for several years—seems to be simmering down.

Are we headed for a housing market peak? If you don’t think we’re already at that point, there’s talk we might be soon. Sure, home prices are still rising. But the latest data shows an increase in the number of homes for sale, days spent on the market and price cuts.

What does all this mean if you’re a current homeowner, a potential home buyer or a possible home seller?

Home values are still going up—but there’s a growing chance that will change.

According to the Housing and Mortgage Market Review, home prices have more than a 90% chance of rising or staying the same during the next two years.1 Plus, home prices are currently at record highs. The median list price in April 2019 was $310,000. That’s a 7% increase in just one year!2

According to the Housing and Mortgage Market Review, home prices have more than a 90% chance of rising or staying the same during the next two years.1

Just keep in mind that, while prices are still projected to go up, growth is expected to slow down by a few percentage points.3 So, you could be in a good position when you’re ready to sell. But you might not want to wait too long.

The number of homes for sale is increasing, which offers buyers more options.

Because the market’s been sizzling, it’s been pretty rough out there for home buyers. If you’ve been on the hunt for a home, chances are you’ve seen plenty of houses you like, but they were already under contract. Or maybe you’ve ended up on the short end of so many bidding wars that you’ve lost count of them all.

Find expert agents to help you buy your home.

Why does this keep happening? There simply haven’t been enough homes available to meet demand. But home buyers who are looking for a little relief can finally breathe easier.

Compared to this time last year, the number of houses on the market in the U.S. has grown by 4%, and it shot up by 10% in the 50 biggest cities!4

Compared to this time last year, the number of houses on the market in the U.S. has grown by 4%, and it shot up by 10% in the 50 biggest cities!4

Let’s take a closer look at some of those cities. When comparing April 2019 to last year, the big cities that experienced the most dramatic growth in inventory include:5

  • San Jose, CA (+92%)
  • Seattle, WA (+82%)
  • San Francisco, CA (+39%)

On the flipside, these big cities broke the trend and decreased in inventory:

  • St. Louis, MO (-16%)
  • Washington, DC (-15%)
  • Rochester, NY (-10%)

Sure, not every housing market is experiencing an increase in homes for sale. But with the national average on the upswing, there’s generally an increasing amount of options for buyers to find the home they want.

The number of days homes spend on the market might be increasing—which prompts sellers to get theirs sold soon.

You might think sellers are having a harder time selling their homes since they have more competition. But it hasn’t quite gotten to that point. In fact, houses spent an average of 58 days on the market in April—which is only one day less than last year. However, the 50 biggest cities saw that number increase by two days.

Let’s dig into the details: The cities that saw the greatest increase in days on the market include:6

  • San Jose, CA (+8 days)
  • Kansas, KS (+7 days)
  • Los Angeles, CA (+7 days)

So, while the national average for days on the market has gone down by one, there seems to be a greater chance of an increase here.

Lower interest rates and more price cuts could benefit buyers.

Mortgage interest rates have been declining since the start of 2019. In April of 2018, the average rate for a 15-year fixed-rate loan stood at 3.93%, but it dropped to 3.61% over the year.7 The Federal Home Loan Mortgage Corporation (Freddie Mac) projects interest rates to continue to drop steadily in 2019 before going back up in 2020.8

Also, the number of homes that had their prices cut went up by 2% in April compared to last year—and it looks like we could see more of these cuts moving forward. In fact, 37 of the 50 largest U.S. markets increased in price reductions compared to last year.

Check out the cities with the greatest price cuts year-over-year:9

  • Las Vegas, NV (+15%)
  • San Jose, CA (+9%)
  • Seattle, WA; San Francisco, CA; Atlanta, GA (+5%)

If you’re looking to buy a home, this is music to your ears! After all, it’s hard to be upset about lower mortgage rates. And if the price cuts continue, prospective home buyers will gain more negotiating power!

What does a cooling housing market mean for buyers?

Even though the housing market seems to be cooling, buyers may still have to be competitive to get the house they want. So, if you’re planning to buy before the end of the year, make sure you’re fully prepared.

  1. Get a mortgage preapproval. When you’re preapproved for a mortgage loan with a lender that offers legitimate, credit-underwritten preapprovals, you give yourself a financial leg up on the competition. Getting preapproved will show sellers you can back up your offer with real money, which will put you in a much more competitive position.

  2. Stick with your budget. We get it: It’s been a frustrating few years for folks looking to buy a home. Stay patient! Remember, we recommend keeping your mortgage payment to no more than 25% of your monthly take-home pay on a 15-year fixed-rate mortgage. With the market starting to favor buyers, you could end up in a better position to negotiate. So take advantage of that!

  3. Work with a pro. Whether you’re in a hot market, a cold one or somewhere in between, buying a house can be stressful. So partner with an experienced real estate agent. A good agent will walk you through all the complex details of buying a house to close on a home—no matter what the housing market looks like!

What does a cooling housing market mean for sellers and homeowners?

It’s easy for homeowners and sellers to get spooked when they hear words like housing bubble get thrown around. First, take a deep breath!

Like we mentioned earlier, home values are still on the rise and will likely continue to be for the next couple of years. But, with more homes on the market, demand is taking a dip—which means some buyers may choose to wait as the housing market levels off. So you might need to check your approach.

  1. Don’t borrow against your home’s value. With home equity increasing and plenty of homeowners staying put in their current homes, some folks are tempted to tap into that equity by taking out a home equity loan or a home equity line of credit (HELOC). This is a bad idea. It’s not worth putting your home at risk for a remodeled kitchen or a new couch. Saving up and paying cash for upgrades is a much smarter move.

  2. Be willing to readjust your price. Savvy house hunters can sniff out overpriced homes from far away. If your home has been sitting on the market longer than expected, talk to your real estate agent about lowering the price. Will it hurt a little? Maybe. But the longer your home stays on the market, the more doubt seeps into buyers’ minds about how great your home really is. If your listing becomes stale, buyers are more likely to skip over it.

  3. Stay patient. With demand leveling off, you could see a drop in the number of offers you expected just a year ago. That’s okay! It might take a little longer than usual to sell your home as the housing market cools down. Stick with the home-selling process, and use the time to work with your agent and get your house in order!

Stay on top of the trends with a pro.

It’s hard to predict what will happen with the housing market. Things can change rapidly from one month to the next! And what’s happening in the housing market in California might be quite different from what’s going on in Iowa.

That’s why it’s important to work with an experienced real estate agent who can help you navigate the trends in your area. Whether you’re a first-time home buyer trying to make sense of it all or a homeowner looking to sell your house in a hurry, working with one of our Endorsed Local Providers (ELPs) will help you reach your goals.

Find a real estate agent today!

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.

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You need an agent who cares more about you than their commission check.
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