Why is it taking so long for the housing market to cool off?

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What is keeping the housing market from cooling off?

Positive inflation metrics from last Thursday lead mortgage rates to record their largest single day drop in history. Housing prices have gone down a bit since the summer, but why haven’t they cooled off further?

Housing costs in the CPI jumped by 0.8% in the otherwise positive numbers. The reason being is that housing takes longer to show change. Homeowners are often in mortgages that last for years and renters are often in leases that last for a year. It takes time for changes in cost to appear in the housing market because the cycles are longer than other aspects of the CPI.

We know that housing prices have declined in several markets, but widespread cooling has yet to occur.

What is happening to homes & properties bought during the pandemic?

Work from home policies enabled people to live just about anywhere and work their same job, and that helped fuel the hot housing market that occurred after the initial months of the pandemic and lasted into 2022.

From the start of the pandemic to June 2020, home prices jumped 42%. Most of that appreciation was due to high demand and low inventory that occurred at the time.

Most, if not all, of that demand has subsided. Higher than previous mortgage rates, a return to the office, and inflation have led to a slowdown in the housing market.
KPMG looked at the trend and the backlash against and is projecting that housing bought during the the pandemic could lose up to 15% of its value as the market cools. That could be good news for home buyers who are looking to re-enter the market, but it’s not likely what homeowners want to hear.

Is there a way to stop investors from buying homes?

It can be a challenge for a normal home buyer to compete with larger investors. Homeowners looking the get the best deal they can have often preferred institutional cash over individuals getting a loan.

The Port of Greater Cincinnati Development Authority is working to solve that at a local level. ‘The Port’ bought 194 foreclosed properties and is looking to sell them to local buyers only. To the director’s knowledge, ‘The Port’ is the only government agency that has ever attempted to do this.

A lot of the properties need work to make them livable, let alone sellable, but the agency is working with locals to fix houses and help them to secure mortgages.  

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