After two years of stiff competition and fast-rising prices, the residential housing market in the U.S. began cooling quickly over the second half of 2022 and beginning of 2023.
After home prices rose approximately 40% in a two-year span, many buyers have found themselves unable to afford property. Inflation in other sectors and declines in the stock market have made it more difficult to build up the savings needed to buy a home. On top of this, rising interest rates have increased costs to borrow, which has reduced the budget for many buyers—especially first-time buyers without existing equity or large down payments. These factors have slowed the market considerably.
One of the most obvious effects has been on home sale prices. Price growth exploded during the COVID-19 pandemic while interest rates were low, households savings and investment returns were high, and more people were spending time at home. According to data from Redfin, the year-over-year rate of growth reached a peak of 26.1% in May 2021, and the market continued to see double-digit percentage growth until the middle of 2022. But by the end of 2022, home prices were just 1.3% higher than they were the year before.
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