The overheated U.S. housing market is starting to cool down Anyone looking to buy or sell a home is suddenly facing a very different market. Sales have dropped and once-hot markets are cooling. Home builders have noticed and are rethinking construction plans.

The overheated U.S. housing market is starting to cool down

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ARI SHAPIRO, HOST:

The overheated U.S. housing market is losing a little steam. Sales of existing homes dropped in June for the fifth month in a row. Builders broke ground on fewer new homes as well. Soaring mortgage rates are pushing some would-be buyers out of the market, as NPR's Scott Horsley reports.

SCOTT HORSLEY, BYLINE: Lisa Hayes and her husband started shopping for a new house in Vermont this year. Like a lot of new parents, they wanted more space.

LISA HAYES: We quickly realized we were outgrowing a 960-square-foot condo with an infant that was starting to become mobile.

HORSLEY: But every house they looked at was too expensive or needed too much work, and the bidding process was so frenzied there was little time to think things over.

HAYES: We couldn't afford to make an offer of $15,000 over asking. We were getting outbid by people that were just coming in and doing cash offers.

HORSLEY: Hayes and her husband had almost given up when suddenly, this summer, things seemed to settle down. They found an older farmhouse that had been sitting on the market for an unheard of two weeks. They made an offer for less than the asking price and struck a deal.

HAYES: We closed last week, moved in the next day and have been unpacking.

HORSLEY: The housing market, which was turbocharged through much of the pandemic, has started to slow down. Sales of existing homes last month were down more than 14% from this time last year. The average sales price continues to climb nationwide, but prices have actually dropped a bit in some of the most overheated markets like Las Vegas, where Tom Blanchard is president-elect of Nevada Realtors.

TOM BLANCHARD: I'm sure everybody feels like it's been a sudden stop. When you're doing 100 on the highway and all of a sudden you see a cop and you have to slow down to the normal 75, you feel like you're going really, really slow.

HORSLEY: The cop in this case is Federal Reserve Chairman Jerome Powell. He and his colleagues have begun to aggressively raise interest rates in an effort to curb inflation. And the cost of a home mortgage has nearly doubled as a result.

BLANCHARD: So they put some brakes on it. Hopefully they just don't overbrake and stop it completely, but that's always the worry.

HORSLEY: Rising mortgage rates, along with rising prices, have added nearly $750 this year to the typical monthly house payment - out of reach for many would-be buyers. Those who remain, though, are finding more homes to choose from. There were nearly 10% more homes on the market at the end of June than the beginning of the month. As demand cools off, Blanchard says some sellers are having to cut their asking price.

BLANCHARD: Let's face it, the greed factor was pretty huge. They were trying to get everything they could and then some, and they could do it when there was everybody beating down at their door. Now you've got to come back to reality and realize that your house isn't worth the million dollars that you thought it was. It was only worth $800,000.

HORSLEY: Homebuilders are also adjusting. Builders broke ground on about 8% fewer single-family homes last month than the month before. Chief economist Ian Shepherdson of Pantheon Macroeconomics suspects this is just the beginning of the housing shakeout.

IAN SHEPHERDSON: These numbers are all going to get worse before they get better. It's going to be ugly during the transition, but I think what we'll end up with is a market which is more healthy because it is not healthy to have a housing market where home prices are rising 20% per year or more. That's deeply abnormal.

HORSLEY: Emily Boone listed her home in Charlotte, N.C., this spring in anticipation of a move to Michigan, where her husband got a new job. It's been an emotional roller coaster, she says, with some buyers offering way over the asking price only to get cold feet and back out. Ultimately, she accepted a somewhat lower bid from a first-time buyer who wanted a place to live, not an investment.

EMILY BOONE: I'm not sure that that was the wisest choice financially, but it certainly makes us feel like we're not contributing to a market that is elbowing out people who are going to live in the homes.

HORSLEY: Boon hasn't found a new house yet near her husband's Michigan job. She says they may end up renting for a while as they try to figure out this new market. Scott Horsley, NPR News, Washington.

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