Things may be looking up for those looking to buy a home.
- In May, sales of existing homes fell 3.4%.
- Last month’s reading was the lowest since June 2020.
During the second half of 2020, mortgage rates fell to record lows and new home listings slowed. This has created a massive increase in demand from home buyers. And it’s that same level of demand that has kept house prices soaring ever since.
But recent housing market data shows that things may finally be calming down. And so, if you’re struggling to buy a house, you may soon find relief.
Sales eventually slowed
In May, sales of existing homes fell 3.4% from the previous month, according to new data from the National Association of Realtors. Compared to May 2021, they were down 8.6%.
This represents the weakest monthly reading since June 2020. However, as we all know, June 2020 was only a few months after the eruption of the COVID-19 outbreak. So taking that into account, experts say May’s reading is actually the lowest since January 2020, before the pandemic impacted the housing market.
Good news for buyers?
A slowdown in the pace of sales could signal that buyers are finally saying no to exorbitant home prices and rising mortgage rates. And if buyers continue to pull out of the market, that should push home prices down by closing the gap between supply and demand.
But let’s also recognize that home sales slowed in May due in part to a lack of inventory. At the end of May 2022, there were 1.16 million homes available for sale. That’s 4.1% less than the number of homes available in May 2021. And at the current rate of sales, that’s only 2.6 months’ supply of homes.
Meanwhile, it takes more than a 4-6 month supply of homes to create an equalized housing market that does not blatantly favor sellers like the current market. But as buyer demand declines and housing stock increases, we are getting closer to that point. And that’s certainly a good thing for buyers.
How to prepare to buy a house
If you’ve been waiting for the housing market to cool down before buying a home, you may have the opportunity to pounce earlier than expected. But to that end, you’ll want to make sure you’re really in a strong position to buy.
In this regard, check your credit report to ensure that there are no red flags and that your credit score is correct. You need a minimum credit score of 620 to qualify for a conventional home loan, but most mortgage lenders will want to see a higher number. And if you want to get a competitive interest rate on your home loan – an important thing to do at a time when rates are rising everywhere – then you’ll generally need a credit score between the mid and the top of 700. or more.
At the same time, set a home buying budget and aim to have enough cash on hand for a 20% down payment on a conventional mortgage. Hitting this mark will help you avoid private mortgage insurance, an expensive premium you probably don’t want to deal with at a time when house prices are still high and mortgages have become more expensive to take out.
The slowdown in home sales could be a relief for buyers. Admittedly, we can’t say for sure when home prices will start to drop noticeably, but buyers should keep faith that we’ll get there – perhaps sooner than expected.
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