Seasonal cooling, cost strains bring housing market closer to ‘normal’

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SEATTLE — The housing market continued its return back to earth in December as affordability challenges kept demand in check, the latest Zillow data shows. Falling mortgage rates lowered costs slightly, and a number of key indicators inched closer to seasonal norms during what is typically the slowest time of year.

Buyers should appreciate that list prices are once again roughly indicative of the sale price and even slightly aspirational on the part of sellers. Just over a quarter (28%) of homes nationwide sold above their first list price in November (the most recent data).

That’s the lowest portion since June 2020, when the housing market was just getting over the initial shock of COVID-19 and starting to heat up, but it’s still higher than the 21% sold above list price in November 2019. Metros with the highest share of homes selling above list price are relatively affordable: Buffalo (63%), Hartford (57%) and Milwaukee (48%).

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“The housing market ended 2022 in a deep freeze, but there are some green shoots pushing up,” said Jeff Tucker, senior economist at Zillow. “The recent thaw in mortgage rates has begun to attract some renewed interest from buyers, and home sales are climbing again compared to last year. If rates continue to march down this spring and sellers return in seasonal force, the housing market just might get to have a normal — maybe even boring — year.”

Typical time on market — how long a listing waits before going pending — is now up to 30 days. It’s a far less frenzied environment than last December’s 13 days till pending and the low of just six days that was seen in the past two springs, but still considerably faster than the 43 days to pending before the pandemic, in December 2019.

Homes in Western metros that were white hot in 2021 are now taking the longest to sell: 68 days in Austin, 57 days in Las Vegas and 55 days in Phoenix. Meanwhile, the fastest-moving markets are more affordable; Hartford, Cincinnati, Kansas City and Columbus all saw median listings go pending in two weeks or less.

Monthly mortgage costs are now just under $1,800 for a typically valued home after a 20% down payment, a decline of more than $100 from the peak in October. But payments are still 62% higher than last December and are $875 higher than in December 2019. These affordability challenges are dragging demand down from the lofty heights seen earlier in the pandemic. Sales in November measured by Zillow‘s nowcast were down 33% year over year and 16% compared to 2019.

Total inventory is declining roughly in line with pre-pandemic seasonal norms and is gaining ground over last year, rising from a 26% annual deficit in January 2022 to now standing at 16% above the previous year.

But the recovery of inventory is being driven by falling sales, not the addition of new listings. Still high yet falling mortgage rates may be convincing current homeowners to hold on to their property until the spring selling season. December is usually the slowest time of year for sellers to list, but new additions in December were significantly lower than in 2019, and new for-sale listing levels have lost ground to the previous year for eight consecutive months.

Typical rents nationwide slid for three straight months to close out 2022, but at $1,981, they are still up 7.4% year over year.

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