Is the housing market actually cooling — and what it means for you
If you've been watching the housing market hoping for a meaningful correction before you buy, here's what the data actually shows — and what it means for your decision right now.
If you've been watching the housing market over the past two years hoping for a meaningful correction before you buy, here's what the data actually shows — and what it means for your decision right now.
What "cooling" actually means
Housing market commentary tends toward extremes. Either prices are always going up and you should buy immediately or a crash is imminent and you should wait. Neither framing is particularly useful.
What the data shows in most markets right now is more nuanced: price growth has slowed significantly from the 15% to 20% annual appreciation of 2020 to 2022, inventory has increased from historic lows, and the pace of sales has moderated. That's cooling. It's not a crash.
The markets that saw the most extreme appreciation during the pandemic — Austin, Phoenix, Boise, parts of Florida — have seen the most meaningful price corrections. Markets that appreciated more modestly — most of the Northeast and Midwest — have held value better and in some cases are still appreciating.
Why prices haven't collapsed the way many expected
The simple answer is supply. The United States has been underbuilding housing relative to household formation for over a decade. Even as demand softened in 2023 with rising interest rates, the fundamental supply shortage in most markets kept prices from falling dramatically.
The lock-in effect made this worse. Homeowners who refinanced at 3% rates in 2020 and 2021 have little incentive to sell and take on a new mortgage at 7%. This kept inventory constrained even as buyer demand softened — which kept prices stickier than historical models would have predicted.
What higher interest rates actually do to your purchase
The conversation about whether to buy in this rate environment often focuses on price. It should focus on monthly payment — that's what actually affects your life.
At 3% interest rates a $400,000 mortgage costs roughly $1,686 per month in principal and interest. At 7% that same mortgage costs $2,661 per month — a difference of nearly $1,000 per month or almost $12,000 per year. That's the real math of the rate environment and it explains why affordability has deteriorated so dramatically even in markets where prices have softened.
The common advice that you can "refinance when rates drop" is real but requires a bet on future rates that nobody can make reliably. Refinancing also costs money — typically 2% to 5% of the loan amount in closing costs — and takes time to recoup through lower monthly payments.
Markets to watch right now
Markets showing signs of recovery: The Midwest — Columbus, Indianapolis, Kansas City, Minneapolis — never saw the extreme run-up and hasn't seen significant correction either. Prices are more stable, inventory is gradually improving, and affordability is significantly better than coastal markets.
Markets still finding their floor: Parts of Florida, Austin, Phoenix, and Boise are still digesting the post-pandemic correction. Buyers in these markets have more negotiating power than they've had in years. Sellers are more motivated. This doesn't mean prices will keep falling — but it does mean you're not competing in a frenzy.
Markets that have stayed hot: The Northeast corridor — New York suburbs, Boston, Washington DC area — has remained surprisingly resilient. Limited inventory, strong job markets, and constrained supply have kept prices elevated. Less room for buyers to negotiate.
What this means if you're deciding whether to buy now
There is no universally correct answer — it depends on your market, your timeline, your finances, and your life circumstances. But here are the questions that actually matter:
How long are you planning to stay? Historically, buyers who hold for 5 or more years come out ahead regardless of where they bought in the cycle. Buyers who need to sell within 2 to 3 years are taking on meaningful market risk in any environment.
Can you afford the payment comfortably at today's rates? Don't buy based on a projected future refinance. Underwrite the purchase at the rate you're actually getting. If the payment is uncomfortable at that rate, that's important information.
How is the rental market in your target area? In some markets renting is significantly cheaper than owning on a monthly cash flow basis right now — which gives you time and optionality while you wait for your situation to clarify.
What is the specific supply situation in your target neighborhood? National and even city-level data can obscure what's happening at the neighborhood level. A neighborhood with a new train station, a new employer, or an improving school district can appreciate while surrounding areas stay flat.
The honest bottom line on market timing
Attempting to time the housing market precisely is mostly futile. The variables are too many and the feedback loops are too slow. What you can control is the quality of the specific decision in front of you: the right neighborhood for your life, the right price for your budget, and the right timeline for your circumstances.
Do the neighborhood research. Understand the specific market dynamics in the area you're considering. Don't let macro narratives substitute for specific local knowledge.
