Overheated real estate market begins to cool

July figures show wild price appreciations may be scaring buyers.

But, notes one expert on the housing market,“if prices have gone up 20% and then dip 2%, it’s not the end of the world.”

The pandemic created a frenzied real estate market in much of the United States that has yet to let up, with demand for housing still outpacing the number of homes coming on the market, giving sellers a heavy upper hand. But economists say the market cooled off a bit in July — perhaps a sign the wild price appreciations of the past year may have scared off some buyers who prefer to wait until things calm down, to stay put or to continue renting.

Nationally, U.S. median home prices held steady from June to July at $385,000. That’s up 10.3% from last year at this time, according to the latest data from Realtor.com. It is slower growth than the 12.7% increase in June 2021, and it marks the third month in a row in which the year-over-year gains have slowed.

“There’s a lot of buyer sticker shock,” said John Burns, CEO of John Burns Real Estate Consulting, based in Irvine, California. “People who are a little more investment oriented or who maybe already own a home have pulled back.” Burns said prices could see a correction in the coming months in many markets — but not a dramatic one.

“It is just moving from super hot to normal hot,” said Lawrence Yun, chief economist for the National Association of Realtors, which has not yet released its July data. “It is still a seller’s market.”

It may also signal the return to a normal seasonal dip with many schools back in-person and delayed summer vacations finally underway. In 2020, the market came to a near standstill after COVID lockdowns hit in early spring — typically the busiest home buying season of the year.

But it roared back to life during the summer, with people upgrading to larger homes or leaving cities for suburbia, even as inventory fell steeply across the country. Homebuyers continued to flood the market with demand through the fall and winter, peaking this spring.

Economists say the delta variant’s impact on housing will likely be to accelerate the hybrid and work-from-home trend that is driving buyers with the means to do so to upgrade to larger houses — a trend that often takes people farther from the urban core or to less expensive cities. And interest rates remain low, another factor in surging housing demand.

The most dramatic price appreciation happened in Western states and in suburban and exurban areas where buyers are looking for larger, single-family houses and relatively affordable prices.