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03/01/2024

When Will Housing Prices Drop? What to Expect


A mid-sized modern home pictured in the daytime. The house has white columns on its porch, beige vinyl siding, and gray shingles. In the current housing market, a home like this is much more expensive than it was five years ago.

Housing Market Slowdown Signals to Watch — Could Prices Fall?

The real estate market, much like any other market, experiences cycles of ups and downs. When there is high demand, the availability of houses decreases, and prices go up. However, these market dynamics eventually shift. Home price growth slows down, bidding wars vanish, and houses remain on the market for longer than before. Whether these shifts are good or bad for you depends on your circumstances and timing. The question then arises: How can you spot a shift before it happens? Are there any indicators to look for, and if so, what are they?

In this article, we'll provide you with the answers to these questions and more. We'll give you practical signs to look for, actionable tips to keep in mind, and even alternative options, such as manufactured housing, that are worth considering, especially when the traditional housing market becomes unaffordable.

A single-story home with blue vinyl siding and white windows. Without a housing market slowdown, this kind of home would be unaffordable for many Americans with even moderate levels of income.

What is a Hot Housing Market, Anyway?

Let’s start by understanding what exactly constitutes a "hot" housing market. A "hot" housing market is known as a "seller's market." This is because, in such a market, real estate prices are on the rise, and competition among buyers is fierce. Sellers tend to benefit the most in this scenario. There are several factors that contribute to a “hot” housing market. One of them is a booming economy.

When the economy is thriving, people have more disposable income and are more inclined to make large purchases. Lower interest rates can also play a significant role in making the market hotter, as they reduce the cost of a mortgage, which can be great for borrowers. Additionally, government policies enacted to temporarily support the real estate market can also contribute to a hot market. When all of these elements are combined, it makes home buying more attractive, which increases demand, reduces the supply of homes, and shifts the market toward the hotter end of the spectrum.

Housing Market Slowdown: Signals to Watch

Even when the market is red hot, there are signs that may point to an impending slowdown. Here are a few:

1. Housing Inventory Increase

When homes sell quickly, it indicates a fast-paced market. However, if more homes become available and remain on the market for a longer period of time, it may suggest that the market is starting to cool down. It's not always a reliable metric since temporary dips can happen, but for potential buyers who have felt at odds with a hotter housing market, this can often provide a bit of hope. A slowdown increases buyers' negotiating power as they explore their options in a less competitive environment.

 A gray single-story home with white porch trim. The home’s lawn is verdant and looks well kept.

2. Bidding Wars and Price Reductions

In addition to an increase in housing inventory, a decrease in bidding wars and an increase in price reductions may also indicate a shift toward a slower market. Traditionally, competitive bidding wars are a hallmark of a robust housing market, but as demand slows, so does the competition, and sellers are likely to lower their prices accordingly. If you're looking to buy a new home and are encountering less competition, this might indicate the market is slowing down.

3. Fewer Mortgage Applications

It is generally assumed that a reduction in the number of mortgage applications from the previous year indicates a decline in home sales. The Mortgage Bankers Association releases weekly reports containing data comparing mortgage loan application volumes over different periods, making it a valuable resource for tracking market trends. Although minor changes over a week or two may provide some indication of the market's direction, comparing the data to the previous year provides a more comprehensive picture of where things are headed.

4. Real Estate Industry Layoffs

Layoffs by major firms can be a sign of a bigger change happening in real estate. Just like with any other industry, it's important to pay attention to these announcements. Companies often reposition themselves to align better with their projections and strategic goals. Studying these moves can provide valuable insights to people who are trying to anticipate where the industry is headed. By observing the layoffs and restructuring efforts of major firms, individuals can gain a deeper understanding of the direction and potential shifts within the real estate market.

 A manufactured home with beige vinyl siding partially shaded by a nearby tree. In a hot housing market, manufactured homes can be an affordable alternative to stick-built houses.

Manufactured Homes: A Solution in Uncertain Times

When interest rates are on the rise, finding a practical and affordable home can feel impossible. However, when the market seems volatile, manufactured homes can be the perfect solution. These homes provide a cost-effective solution without compromising on quality, making them an attractive option for anyone looking for stability and value in a changing market. Uncertainty can be frustrating, but you can find a flexible, affordable alternative with manufactured homes regardless of the type of home you're looking for.

Investing in a manufactured home may not be for everyone, but it's a fantastic way to bypass a volatile housing market. If you're considering buying a manufactured home, no matter the size, 21st Mortgage is here to help. As the leading lender for mobile and manufactured homes nationwide, we can help you find a house you love.

Don't let market volatility hold you back. Take advantage of this opportunity and invest in a quality home you'll enjoy for years to come. Contact our team today and start your journey toward homeownership.

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