As house hunters and their real estate agents are well aware, the real estate market has been rather volatile over the past year with rapidly rising home prices and an alarming shortage of listings. First-time buyers are finding themselves priced out of the market, with houses selling quickly and well over asking price. In addition, rapidly rising materials prices have slowed new construction.

To give a sense of perspective, home prices rose 18.8% nationally over the past year, while the typical income raise during this period was only 3%. In the Huntsville area market, a recent Huntsville Area Association of Realtors (HAAR) report noted that home prices rose 21.6% over the first quarter of 2022, far exceeding the 2% increase in median household income in 2021.

Affordable housing remains an issue here: during the first quarter of 2022, the number of houses selling for over $300,000 rose substantially, while those selling under that price point dropped. The biggest decrease was in homes selling for between $200,000-250,000, with a 50.6% decline over the first quarter of 2021.

The HAAR report states that the jump in consumer price inflation has not yet had a significant impact on the housing market. However, if key elements in home affordability such as mortgage rates, construction materials costs, etcetera continue to outpace the median household income, this could have a negative impact on the local residential real estate market.

In a worst-case scenario, home prices will continue to rise, ultimately putting home ownership so far out of reach for homebuyers that the housing market collapses. However, there are some promising signs that things are about to get better, at least for homebuyers.

Although an April report from CoreLogic predicts that there is a “very low” chance of home prices dropping over the coming year in the Huntsville area, the latest forecast released this week by the Mortgage Bankers Association indicates that home price increases are slowing down with a prediction of just a 4.8% increase this year.

While prices will continue to gradually trend upward, albeit at a slowed pace, this increase does indicate normalization of housing market growth: since 1989, the average annual home price increase in the United States is 4.6%.

Another indicator of change on the horizon comes from a May 25 Zillow report, which noted that mortgage rates have declined for the second week in a row. It also stated that both existing home sales and housing starts declined due to a lack of inventory and higher mortgage rates.

Zillow economists expect the market to begin rebalancing as rising costs keep prospective buyers on the sidelines long enough for inventory to begin catching up to demand. Even so, the housing market remains highly competitive with homes selling very quickly.

A recent Realtor.com forecast also anticipates a correction in the real estate market, noting dropping home sales, smaller bidding wars, and sellers cutting prices. It notes that lenders are becoming more selective, giving mortgages to only the most qualified borrowers, who are less likely to wind up in foreclosure.

Fears of a cooling market has led to a recent jump in house listings–Realtor.com reported a 9% jump in the supply of homes for sale during the second week of May over the same period last year. This is the biggest annual gain the company has recorded since it began tracking the metric in 2017.

“Rising mortgage rates have caused the housing market to shift, and now home sellers are in a hurry to find a buyer before demand weakens further,” said Redfin Chief Economist Daryl Fairweather.

Experts continue to dismiss the idea that the market is in a bubble due to the continuing high demand for housing, which will keep prices high. “Housing goes in big cycles. You see booms and busts frequently in real estate,” said Bill McBride, author of the economics blog Calculated Risk. “Right now is a boom. But we will see a time where there’s open houses and there are only looky-loos and crickets.”

According to Sean Magers, Director of Association Outreach of Huntsville Area Association of REALTORS® (HAAR), the Q1 economic report reflects a local market that will continue to grow for the remainder of the year.