U.S. Housing Market Starts to Cool Down

Posted by Matin Varshochi in HousingJuly 18, 2022(Last Updated July 29, 2022)3 min read
Key Takeaways
  • Since the beginning of the COVID-19 pandemic, many people have taken advantage of the low-interest rates and decided to purchase a house.
  • However, there has been gradually less activity in the housing market, mainly because of the Federal Reserve hiking interest rates and the number of houses for sale on the market.
  • Below are two main factors that have led to a gradual decline in aspiring homeowners within the housing market.
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Since the beginning of the COVID-19 pandemic, many people took advantage of the low-interest rates and decided to purchase a house. As many others had a similar thought process, the demand for housing began to rise. Alongside the rising demand, the halt in construction meant fewer houses were on the market, ultimately leading to surging home prices over the past two years.


However, some cities have begun experiencing reduced activity in the housing market due to recent economic events, and here is why.


Top 10 Cities Where the Housing Market is Cooling


As the housing market is cooling, meaning there are fewer potential homeowners, some areas are experiencing less activity than others. Below is a table containing the top 10 cities which are experiencing the quickest cooldowns, as well as the median sale price for each house sold. 



Median Sale Price

San Jose, California


Sacramento, California


Oakland, California


Seattle, Washington


Stockton, California


Boise, Idaho


Denver, Colorado


San Diego, California


Tacoma, Washington


San Francisco, California


















Main Factors of Reduced Housing Market Activity

Federal Reserve Raising Interest Rates


When the pandemic first arose, there was a major concern that the United States economy, and its stock market, would collapse. Therefore, to help prevent an economic crash, the government began distributing COVID-19 relief packages, ultimately causing the highest inflation levels since 1990. 


Consequently, the Federal Reserve stepped in to reduce inflation and began raising interest rates. The purpose behind raising the interest rates was to lower consumer spending; it worked, as fewer people were in the real estate market looking for homes. Consequently, the decrease in demand meant that homeowners looking to sell their homes had to list them at lower prices to attract more buyers and a higher possibility of a sale. 


Recommended Read: Federal Reserve Announced Interest Rate Hike


Rising Construction of Homes


When essential services were the only businesses operating during the pandemic's peak, no new houses were being built to list on the market. When there is a shortage of supply in a market with exceeding prices, it will lead to price increases.


Image Credit: Leszek Glasner / Shutterstock.com


Since then, construction companies have resumed building houses to go on the market. As the number of homes for sale on the market has gradually increased, the gap between the sufficient and current supply of homes has reduced. Due to the heightened supply, the housing market has begun experiencing price drops. 


When to Buy a Home


It is too difficult to determine the ideal time for purchasing a home. As home sales have gradually reduced, so have the prices because homeowners wishing to sell their houses may have to begin slowly listing at a lower price to try and find a buyer. As a result, this may mean more people could potentially become homeowners in the near future. However, the important thing to keep in mind is this course of action should be done when your personal financial situation allows you.  


Image Credit: Billion Photos / Shutterstock.com


If this major life investment is made prematurely, it could deplete one’s personal finance situation rather quickly if the monthly payments are too expensive. Therefore, before making any major financial decisions, use a mortgage calculator to determine your best budget. 

Recommended Read: The Best Time to Buy a House


The Money Wrap-Up


Although seeing the reduced activity within the housing market is good news, it is important to remember that this does not mean houses listed on the real estate market will drop in price significantly quickly. Lawrence Yun, the Chief Economist of the National Association of Realtors, said, “Inventory levels still need to rise substantially – almost doubling – to cool home price appreciation and provide more options for home buyers.” 


Yun’s quote means that housing prices are decreasing, but not at a rapid pace. The reduced number of potential home buyers in the current market is good news as it could lead to gradual price drops, making the average home more affordable. Awareness of the new prices in the housing market is crucial for aspiring homeowners looking to purchase a home as it allows them to monitor whether new listings are within their budget.


Regardless of when a home is bought, the only thing that will vary is the monthly mortgage payment. Purchasing a home now may result in higher monthly payments, but because a home is a long-term investment, this plan of action could be worth it as you can become a homeowner sooner rather than later. 


Disclaimer: The information regarding the real estate market and purchasing a home should not be construed as expert advice. Always consult with a realtor and/or financial advisor before making any major financial decisions. 


Main Image Credit: Laura Gangi Pond / Shutterstock.com

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