9 Telltale Signs the Housing Market is Finally Cooling Off

The hot housing market may finally be cooling down. Here’s what to watch if you want to buy now.
Updated April 3, 2023
Fact checked
sold house

We receive compensation from the products and services mentioned in this story, but the opinions are the author's own. Compensation may impact where offers appear. We have not included all available products or offers. Learn more about how we make money and our editorial policies.

Buying a home is a dream for many Americans. But with skyrocketing home prices over the past few years, it's been nearly impossible for some to actually get into the market. 

However, there may be signs that the housing market is cooling down. This could be good for those who have mastered some smart money moves to help pay rent. Here are a few signs to look for if you’re hoping to jump into the housing market.

Mortgage rates increasing

Praewphan/Adobe upset man

The Federal Reserve has begun to raise interest rates as a potential way to ease high inflation. The rate hikes could impact mortgage rates, which may scare some buyers who were more willing to jump into the market when they thought they could get a low rate.

When trying to calculate how much you can afford for a new home, factor in the cost of the home using a potential mortgage rate. You may be surprised at how similar the monthly mortgage payments may be with a lower house price and a higher rate.

Also, remember that you could refinance your mortgage and get a lower rate if interest rates go down again.

Home sales slowing

Monkey Business/Adobe House for sale

The National Association of Realtors found that existing-home sales declined 3.4% in May, marking the fifth month in a row of declining sales. This could be a sign that sellers don’t see the potential for profit-taking that they did when the market was blazing hot.

It might also mean that homeowners are more willing to negotiate or cut the price to get a home sold.

Mortgage applications declined

thodonal/Adobe online mortgage

Mortgage applications have been declining in 2022, according to the Mortgage Bankers Association. And while there has been a recent uptick as potential buyers get their applications in before the Federal Reserve raises rates again, the number of applications is still down from a year ago.

Pro tip: If you’re ready to buy, you may face less competition to get the home you want. Shop around for the best mortgage lenders that are likely to approve you quickly.

Requests for home showings are down

moodboard/Adobe Open house sign in front of a house

The number of requests for home tours and home-buying services were down 9% at the end of May compared with a year earlier, according to Redfin’s Homebuyer Demand Index. And Google trends show that fewer people are using the search engine to look for “homes for sale.”

These trends could indicate that a smaller pool of people are interested in buying a home — which could mean less competition for your dream home.

Supply has increased

digerati/Adobe housing market

The inventory of active homes on the market has gone up 8% compared with a year ago, according to Realtor.com. It’s the first time inventory has increased since June 2019.

That could be good news for potential homebuyers, who may have more homes to consider before buying one and less competition to have an offer accepted.

Demand has calmed down

Seventyfour/Adobe man speaking by phone while working from home

Some companies turned to work-from-home solutions at the beginning of the pandemic as Americans were asked to isolate and slow the spread of the virus. For some workers, that meant they needed extra space for a home office or they wanted a second home to get away from busy cities where the virus was spreading.

While other sectors of the economy struggled, housing went up. The homebuying shuffle has settled a bit now that families have moved and some workers have found creative ways to make extra money. These changes have led to a decrease in demand and a decrease in prices.

Price cuts are back

Andy Dean/Adobe price reduced real estate sign & new home

As demand decreases, sellers may find that their home isn’t getting the attention at the price point they’ve set.

That waning interest has led to an increase in price cuts to make homes more appealing to potential buyers. In fact, 20.1% of homes on the market in May saw a price drop, which was the highest share of price cuts for homes since October 2019, according to Redfin. A year ago, 10.1% of houses on the market saw a price drop.

Consumers are wary

BullRun/Adobe having discussion about problem sitting at couch

How likely is it that buyers want to buy into the market? The outlook isn’t great.

A survey by Fannie Mae in May found that 17% of consumers thought now would be a good time to buy a home, down from 19% a month earlier. On the other hand, 76% of consumers thought now would be a good time to sell.

For homebuyers looking for ways to avoid money stress, now may be a good time to buy with fewer buyers and rising rates.

More houses are being built

Andy Dean/Adobe New Homes Framing Being Built Construction Site

One of the issues facing the housing market in recent years is a lack of new inventory, causing a high demand for a low supply. But permits to build new houses today have increased over a year ago, according to the U.S. Census Bureau, which tracks housing permits and new construction. That could help ease the supply issue, which could bring prices down.

Unemployment is low

Vasyl/Adobe Young business people in office

One of the big factors in buying a home is how to pay for it. But while there are concerns about how to prepare for a coming recession, the unemployment rate has stayed steady at around 3.6% for the past few months, according to the Bureau of Labor Statistics.

Buyers concerned about their job prospects might feel more comfortable knowing their employer may not be looking at layoffs. And with a low unemployment rate, workers may feel more confident that they can find a new job in case of job loss.

Bottom line

Monkey Business/Adobe realtor showing hispanic family around new home

It's been tough for the past few years to make the dream of owning a home a reality, but that may be possible as prices start to slow down, even as we’re all looking for strategies for dealing with inflation.

Consider talking to a real estate agent now or start the process to be approved for a loan, so you’re ready when the market becomes more affordable and you’re ready to become a homeowner.

Curbio Benefits

  • Update your home so you can sell faster and for more
  • All-inclusive service means you don’t have to lift a finger
  • Small repairs to whole-home renovations, Curbio can do it all
  • $0 due until the home sells with no interest charges

Author Details

Jenny Cohen Jenny Cohen is a freelance writer who has covered a bit of everything, from finance to sports to her favorite TV shows. Her work has been featured in The Wall Street Journal, USA Today, and FoxSports.com.

Want to learn how to make an extra $200?

Get proven ways to earn extra cash from your phone, computer, & more with Extra.

You will receive emails from FinanceBuzz.com. Unsubscribe at any time. Privacy Policy

  • Vetted side hustles
  • Exclusive offers to save money daily
  • Expert tips to help manage and escape debt