After two years of skyrocketing home price growth thanks to a severe housing shortage and low interest rates driving home demand, hope could be on the horizon for the millions of Americans facing high housing costs. February 2022 showed several signs that the market may be starting to cool.

While a number of factors could continue to push prices upward, these three charts show why we could be at a turning point for today's red-hot housing market.

Aerial shot of a suburban neighborhood.

Image source: Getty Images.

1. Existing home sales are down

Chart of existing home sales from February 2022 to January 2021.

Image source: NAR February 2022 Existing Home Sales statistics.

According to the National Association of Realtors (NAR), in February 2022, there were 7.2% fewer existing-home sales in February than there were in January 2022. This marks the seventh straight decline in existing home sales year over year.

The slight drop in sold homes helped boost the inventory of existing homes to 1.9 months of supply, although that's still well below the target range of five to six months of inventory. The sales pattern has been in a bit of a seesaw, moving up and down over the past year, but rising home costs coupled with inflation and now rising mortgage rates could mean the lack of sales activity is here to stay.

2. New residential sales are down

Chart of new home sales from Census Bureau February 2022.

The housing shortage has been attributed as one of the largest drivers of today's scorching housing market. Years of underbuilding following the Great Recession created a shortage of available homes today. New homebuilders have tried to furiously bridge the gap between demand and supply, ramping up development starts and completions since 2020. But February could be the first sign that supply may be exceeding demand.

According to the U.S .Census Bureau and Department of Housing and Urban Development (HUD), new home sales were down 2% in February 2022 from January 2022 levels and down 6.2% from February 2021. There is an estimated 6.3 months' supply of new homes, putting it in a balanced supply market.

Despite the national shortage, it seems people are buying fewer new homes. This could be because affordability is becoming a growing concern as home prices continue to rise and now interest rates are climbing too. If this downward demand trend of new home sales continues, it could push inventory into oversupply.

3. Interest rates are rising

Line graph showing rising mortgage rates from 2021 to 2022.

Image source: Freddie Mac.

The Federal Reserve (The Fed) issued its first increase in the federal funds rate in over four years. This move, while small, is the first of many as the Fed moves from 0% to 1.9% by the end of the year.

While the federal funds rate doesn't set mortgage rates, it does impact the cost of capital and the complicated movements of the financial markets, meaning lenders like banks and other nonmortgage lenders are likely to increase mortgage rates, pushing some of that higher cost burden onto consumers.

Interest rates are trending upward, sitting at 4.67% today for a 30-year mortgage, a 1% increase from just a month ago. With the coming rate hikes by the Fed, it's very likely mortgage rates will continue to climb, making homes even less affordable.

To illustrate how big even a 1% jump can be, a 30-year mortgage at 3.76% on a $281,000 home, the national median home price today, assuming 20% down, would equate to a monthly mortgage payment of $1,042. At today's 4.76% interest rate, that same home purchase would have a $1,174 monthly mortgage payment. That's $1,584 more each year.

Coupled with inflation, rising food costs, soaring gas prices, increased property taxes, and property insurance, plus sky-high real estate prices, more Americans are being squeezed out of the market because of affordability. This will ultimately lead to a decline in demand and likely a slowing of home price growth as demand more closely matches supply.

Housing prices are driven by supply and demand. As you can see in these three charts, there are a lot of signs pointing to a potential balance or correction between today's limited supply and record demand. We could see things start to level back off in the coming months, although there's no guarantee this trend will continue.