Sellers are 'losing their grip' on the housing market as home prices cool, research firm says
Home prices rose just 0.3% in May, a sign that selling power is starting to wane, Capital Economics said.
AP Photo/Elise Amendola
- Sellers are quickly "losing their grip" on the housing market, according to Capital Economics.
- That's because home prices are cooling, thanks to more inventory staying on the market.
- Still, the research firm is forecasting a 5% surge in home prices by the end of the year.
Sellers are losing their advantage in the US housing market.
That's because higher levels of inventory are starting to weigh on home prices, according to the research firm Capital Economics. It's starting to reverse a trend that's persisted for the past few years, with tight inventory pushing home prices to record highs.
US home prices notched another fresh record in May, but the pace of growth cooled. Prices were up 5.9% on a yearly basis, down from 6.4% recorded the prior month, according to the S&P CoreLogic Case-Shiller price index.
This is happening with housing inventory on the rise. Active house listings rose past 800,000 in the US in June, Realtor.com data shows. Meanwhile, nearly 65% of homes on the market are going at least 30 days without being contracted, according to Redfin.
"Another moderate 0.3% m/m rise in house prices in May adds to the evidence that sellers are losing their grip on the market due to increasing supply," Thomas Ryan, a North American economist at Capital Economics, said in a note.
More inventory is good news for buyers, who have been limited by fewer options and inadequate housing supply. Home prices are already starting to fall in key metros, like in the Sun Belt, where housing demand is especially weak, Redfin said in a previous note.
But Capital Economics predicts home prices will continue climbing, forecasting a further 5% increase through year-end, as a decline in mortgage rates boosts demand.
"It will take until 2025, or even 2026, for the market to become better balanced, where we have pencilled in price rises of 3% and
2.5% respectively," Ryan added. "Until recently, this had been an above-consensus forecast, but that is no longer the case."