Economist: ‘The housing market is basically going into hibernation’

What was once a ‘red hot’ housing market is now one quickly cooling off.

“The housing market is basically going into hibernation with buyers and sellers backing off,” Daryl Fairweather, chief economist at Redfin, told Yahoo Finance Live (video above). “Fewer new listings are coming on the market and there's less demand from buyers ... Prices won't fall [but] there's just going to be a lot less activity in home sales happening."

Buyers have been startled by the unrelenting upward march by mortgage rates this year, with the rate on the 30-year home loan sitting above 5% since mid-April. Runaway inflation and talks of a recession are also spooking buyers.

Some sellers, too, are reconsidering their plans.

“The listings right now are homes that haven't been able to sell earlier — they might have some issues, may be overpriced, or luxury homes that people don't want to stretch their budgets to afford,” Fairweather said. “There are fewer buyers going on home tours, too.”

For sellers who are considering putting their home on the market, it’s a strategic balance of pricing because the window to reach buyers who can afford to purchase is short.

“From a seller's perspective, you have to be careful and list at something more conservative, so you can get at least one offer that first week," Fairweather said. "Because if your home sits on the market, that's kind of like a Scarlet letter [and] buyers don't come back the way that they come out during that first week on the market.”

Just a couple of months ago, bidding wars with all-cash offers had sellers in the driver’s seat. Now the market is changing as rising rates make mortgages less affordable for buyers.

“As buyers back off, some sellers who don't have any option but to sell will have to work a little harder because they're not going to have multiple offers like they did before," Fairweather said. "But they will still find a buyer as long as they're realistic with their pricing.”

Ronda is a personal finance senior reporter for Yahoo Money and attorney with experience in law, insurance, education, and government. Follow her on Twitter @writesronda

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