U.S. housing market becoming more buyer-friendly as home prices cool, negotiations improve

Home buyers are feeling the pinch, while home sellers are cautious about a cooling property market — that’s the hot take from Zillow Z, +0.06% senior economist Nicole Bachaud on the latest S&P SPI, -0.37% CoreLogic Case-Shiller U.S. 20-city price index, which fell 1.2% in September, its third consecutive monthly decline. Prices rose 10.4% versus 13.1% in August, reflecting the stronger conditions in late 2021.

“We are seeing demand falling back in the face of strapped budgets and potential sellers staying put, causing inventory to continue to struggle,” Bachaud said. “Price growth will likely continue to moderate, and in the short term prices will likely continue to fall. But this is all part of the housing market rebalancing, which will lead to a healthier, more stable market down the road.

“This rebalancing is already leading the way towards a buyers’ market as buyers are now seeing more negotiating power,” she added. “While turning points and slowdowns can be uncomfortable in the housing market, they are important to getting back to stability. And the minor drops in prices now are so slight in comparison to the massive swath of appreciation seen in the last two and a half years, giving most homeowners peace of mind.

Lisa Sturtevant, chief economist at Bright MLS, agrees. She expects the rise in house prices to cool for the rest of the year “as high mortgage rates stalled buyer activity.” Since September, home sales have slowed as the 30-year mortgage rate surpassed 7%. “In the Mid-Atlantic, for example, home prices were up 4% in October, down from double-digit price appreciation earlier in the year,” Sturtevant added.

Home prices will fall by 8% next year, a report published this month by independent research firm Capital Economics said, but high mortgage rates and a possible recession will continue to hurt affordability. With lending standards still tight and affordability poised to worsen, consumers should expect their purchasing power to deteriorate even as housing prices fall, the group said.

Housing bubble soon... Home prices drop by 20%

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