5 Reasons Dave Ramsey Thinks the Housing Market Is Finally Cooling Down

If you've tried to buy a home in the last few years, you've faced some challenges. During the pandemic, mortgage rates were low -- but the prices of homes skyrocketed. Now mortgage rates are up, which is making borrowing for a property costlier.

There is some potential good news, though. Finance expert Dave Ramsey believes the housing market is finally cooling down, which means you may be able to get a better deal on properties you're interested in.

Here are five reasons why Ramsey believes the market is becoming more favorable for borrowers, along with some tips on what this means for you.

1. Home prices are growing more slowly

Ramsey's first reason for asserting the housing market is cooling down is slower growth in home prices.

At the start of 2023, for example, Ramsey explained that the median list-price of a home in the U.S. was 8% higher than the median list price at the same time in 2022. But between the start of 2021 and the start of 2022, there was a larger 10% increase. And between April 2020 and April 2021, there was a 17% rise.

Data from the Federal Reserve backs up Ramsey's point. In the first quarter of 2022, the median price of homes sold in the U.S. was $433,100, according to the St. Louis Fed. This was up 17.7% from $369,800 during the first quarter of 2021. But in the first quarter of 2023, the median price was $436,800 -- just a 0.85% year-over-year increase.

When prices go up quickly, it's a sign of a hot market. But when prices barely trickle up, the reverse is true -- it likely means the market is turning in favor of buyers. This is an important factor to pay attention to because, ultimately, the price of a home is what determines if it is affordable for you or not.

When prices are skyrocketing, you'll need a larger down payment, have higher mortgage payments, and face a bigger risk of your property value. But when they're increasing slowly-but-steadily year over year, you're more likely to get a better deal.

2. There's more inventory on the market

Ramsey also said there is more inventory of homes for sale on the market this year compared with the past several years. In fact, at the start of 2023, there was a 65.5% increase in total listings year over year.

An April 2023 monthly housing report trend also confirms that there's been a huge increase in the number of houses for sale, again affirming Ramsey's assertion. As of April 2023, there was a 48.3% increase in the number of homes actively for sale this year compared to last year. There was also a 6.3% year-over-year increase in unsold homes, including those under contract.

More inventory -- or a higher supply of houses -- means that prices will likely go down thanks to the laws of supply and demand. During the pandemic when few people were selling, the limited pool of available houses was a leading reason prices went up so much.

3. Homes aren't selling as fast

Slower home sales is a third reason Ramsey believes the housing market is cooling. At the start of 2023, the average home was spending 75 days on the market -- 13 days more than the prior year.

April's housing data also shows homes are spending 17 days longer on the market in April than they did last year. This report shows that in April 2023, houses were averaging 49 days on the market. Although this is less time on the market than during the pre-pandemic days, it is still considerably longer than the average time on the market during the COVID-19 pandemic when houses sold with near-record speed -- especially in hot markets.

If homes aren't selling as fast, that's a great sign all around. It's further evidence of reduced demand, and it means buyers no longer need to jump at the first sign of a property they are interested in (or get into a bidding war for fear of losing a home when houses are selling so quickly).

When homes are selling more slowly, you can take your time to evaluate whether a deal is a good one or not. You can also wait a little bit after a property is listed to see if the seller is willing to negotiate more on price. Sellers are more likely to negotiate when a house has been sitting on the market for a while, but generally won't budge when properties are being snapped up in days.

4. Fewer people are looking for houses

Ramsey explained that fewer people are applying for mortgages this year, which suggests less "home-seeking" activity. After all, most people borrow money to buy homes, so the fact people aren't applying for loans is a clear indicator of reduced demand.

Recent data again backs up what Ramsey has claimed. Demand to purchase a home was down 32% year over year, according to Mortgage Bankers Association data.

As a buyer, the fact that there are fewer people in the market now is also a good sign because you won't have as much competition for properties. The law of supply and demand again really works in your favor here if you're a home buyer, as there's both increased supply these days and slower home sales, and there's also reduced demand resulting from today's higher mortgage rates.

Of course, it's not surprising that fewer people are looking for home loans now when mortgage rates are up considerably compared to prices during the pandemic. People are also getting less stimulus money, which means they may not have that extra financial help that enabled them to more easily save up a down payment. Still, this is good news if you can qualify for a mortgage at today's rates and you have your down payment funds ready to go.

5. Sellers are dropping their prices

Finally, Ramsey said that sellers are a lot more likely to reduce prices this year than last. A total of 15.3% of sellers had to drop their home's price at the start of this year, which is 9.3% more than last year. When it's a seller's market, it's much less likely you'll see these kinds of price drops.

More recent data also shows a big increase in the number of sellers slashing prices. In April of this year, 12.2% of homes had price reductions compared to just 6.8% from the prior April. Obviously, if sellers are dropping prices, this is a good sign for buyers that there are more potential bargains out there to be had.

In fact, all of these five signs of a slowing housing market are good news for buyers. With homes selling for lower prices, more price decreases happening, houses sitting around for longer, and fewer buyers, many people will inevitably be able to get a better deal on a home in today's market.

Although there are these positive signs, remember that market conditions can vary from place to place. And it's still really important to make sure you aren't overpaying for a property and you're in a good position to buy. Even if the housing market is shifting to a buyer's market, you still shouldn't jump in unless you're financially ready for a purchase -- which means having a down payment, emergency savings, and good enough credit to qualify for a home loan at a competitive rate.

If you have made certain you're in a good place financially to move forward, though, then this market may be a much better one for you to make your purchase in than in recent years.