Here’s Why the Housing Market Is Cooling Off and Why It’s OK

homes

There is evidence that the real estate market is reaching an equilibrium.

Movoto Real Estate’s August State of the Real Estate Market report showed that the median cost per square foot for a home in the United States increased by 14.9 percent in July compared to July 2012, while inventory fell by close to 16 percent year over year. At the same time, the average list price per square foot remained flat with June’s figures, and the number of homes for sale increased on a month-over-month basis.

That the list price did not increase between June and July indicates that the inventory supply has begun to catch up with demand. “Going forward, we expect prices to continue to move laterally on a month-over-month basis,” report says. “Higher mortgage rates and increased inventory will keep prices from increasing at the same pace we saw in the first half of the year.”

The average interest rate for a 30-year fixed-rate mortgage edged higher to 4.61 percent for the week ended August 2, compared to 4.58 percent in the week before. “For the first time this year, the price did not increase, which could be a sign that the market is loosening and their buying power could increase,” the Movoto concludes.

Before July, the median list price per square foot rose for six consecutive months. But while this drop might be good news for the market, there has been little change in the price between June and July for the past two years, indicating that the slowdown may be a seasonal trend.

In order to compile this data, Movoto examines statistics from 38 cities.

In 36 of the 38 cities tracked by the industry group, the median list price per square foot increased. The median list price per square foot in July 2012 was $157, and by the end of the last month it had jumped to $181. The three cities that experienced the biggest jump in price were Sacramento, California, with a 64.5 percent increase to $153; Phoenix, where prices rose 39.6 percent to $127; and Mesa, Arizona, with a 32.6 percent increase to $118. Comparatively, prices dropped in New Orleans and Chicago.

Source: Movoto Real Estate

In 32 of the tracked cities, inventory levels decreased. By the end of July, there were 98,689 homes for sale, compared to the 117,815 during the same month last year and the 94,649 on the market in June. In Detroit, Sacramento, and Boston, the decrease in homes for sale was the greatest, while Las Vegas saw an increase in the number of homes on the market.

Source: Movoto Real Estate

Similarly, Trulia’s latest price-monitor report showed that the housing market cooled off in July, as asking prices fell thanks to rising interest rates, falling inventory, and declining investor demand.

The cooling off is good for both the market and for buyers, because if prices keep rising at the pace they had been for the past several months, the market would have been setting itself up for another bubble, Trulia chief economist Jed Kolko told The Wall Street Journal’s MoneyBeat on Wednesday.

Here’s how the main U.S. indexes traded on Monday:

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