The housing market is cooling down but not for a good reason: first-time homebuyers have been priced out

·3 min read
Millennial homebuyers attend open house
Prospective buyers visit an open house in West Hempstead, New York. Raychel Brightman/Newsday RM via Getty Images
  • Existing home sales fell in August, according to the National Association of Realtors.

  • While the market seems to be cooling off, it's partly because prices are too high for many buyers.

  • The median existing home jumped to $356,700 last month, a 14.9% increase from 2020.

  • See more stories on Insider's business page.

The housing market cooled off slightly last month, but that's not exactly good news for homebuyers. It's partly because prices remain too high for many would-be homebuyers.

Existing home sales fell 2% compared to July after two straight months of increases, the National Association of Realtors said in its monthly report on Wednesday. It also showed that total sales dipped 1.5% from August 2020, from 5.97 million to 5.88 million.

The dip in sales coincides with rising housing prices nationwide, which Lawrence Yun, chief economist at the NAR, said is causing many buyers to pause their search.

"Potential buyers are out and about searching, but much more measured about their financial limits, and simply waiting for more inventory," Yun said.

The median price for an existing home jumped to $356,700 last month, a 14.9% increase from the same period last year and the 114th month in a row of year-over-year gains.

That price jump seems to have boxed many first-time homebuyers out of the market. They made up just 29% of home sales last month, a dip from 30% the month prior and 33% last year.

According to a NAR survey from earlier in September, student debt may also be to blame: Nearly 30% of millennials said their debt has led them to push back their plans to buy a house. Debt, combined with houses getting more unaffordable, puts millennial buyers who don't already own a home at a disadvantage.

"Home prices remain our primary source of concern as affordability becomes an increasing challenge, particularly for first time home buyers who have not had the opportunity to benefit from the wealth created from recent surges in home equity," Ruben Gonzalez, chief economist at real estate firm Keller Williams, said in a statement.

There are encouraging signs of a market cool-down

There is hope that the affordability crisis is getting at least a little better.

Inventory is starting to bounce back, with smaller homes slowly gaining a larger share, according to Realtor.com data. That means more affordable homes may be hitting the market in certain markets.

According to a recent report from the real-estate website Redfin, there's also less competition among sellers now than there was a few months ago. Homes are spending slightly longer on the market - about 16 days on average - and, for the first time in about three years, people no longer cite bidding wars as the main reason they couldn't get the home they wanted, the National Association of Home Builders said.

Plus, fewer people are applying for mortgages and requesting home tours than they were in the first half of 2020.

So after the buying craze of 2020, and the low inventory, soaring prices, and feverish bidding wars that followed, it seems as though the housing market may be starting to return to normal.

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