Hot Housing Market Cools Off

The National Association of Realtors reports that sales of existing homes fell in June for the third month in a row, and prices went up at slowest rate in more than 10 years.

Vera Gibbons of Kiplinger's Personal Finance keeps a close eye on the housing market, among other things, and stopped by The Early Show to talk to co-anchor Harry Smith about the changing market.

The market for homes has been red hot for years. Asked if she thinks that things are just getting a little more normal, Gibbons says, "Yes. I mean, the boom has been driven in large part by low mortgage rates. Rates are now on the rise The 30-year fixed is close to seven percent right now … Historically, it's a very good rate. It's gone up quite a bit over the past five years. Inventory is up, and demand is weakening.

"Investors are failing out of some of those markets. And there's the affordability issue as well. A lot of Americans, homes these days have become unaffordable. So demand is tapering off, and supply is up."

One thing that has made headlines recently is that inventory is up — that more homes are for sale. What does this change mean?

"It's good for buyers," says Gibbons. "Buyers have a lot of choices these days. Inventory is up at an all-time high. They've got more bargaining power, more negotiating power. And buyers also have time on their side, something we haven't seen in a very long time. Quite a change from a year ago when buyers were fearful if they didn't make an offer right away. They would lose out. It's not like that anymore. Dramatic shift."

Talking about whether it has turned into a buyer's market, Gibbons says the "tide has shifted."

"Generally, when you have over a six-month supply, it does turn over to a buyer's market. Not in all markets because it's very regional, but in many markets, it is a buyer's market," she says.

What does this shift mean for sellers, who had been reaping the rewards?

"I think a lot of these sellers are still in denial about what's going on out there. It's a different market," says Gibbons. "Sellers ultimately need to lower their expectation. They've got to price on fact. You cannot price on emotion. You have to price on fact given the landscape, price your home appropriately. Don't overprice it.

"Spruce it up from the inside out. Give it a little curb appeal. That becomes increasingly critical when the market cools. And you might also want to throw in some incentives. Buyers are sitting on the fence to some degree. You might want to dangle 'Hey, I'll pay your closing costs.' "

"There was a piece in the paper the other day that people were throwing in their car, the 3-year-old car to help sell the house," Smith says.

"Offer to fix up repairs," Gibbons says. "Things that sellers can do. With mortgage rates the way they are, if you've been out of the housing market, this really might not be a bad time to get in. If the prices are stabilizing, if they're going down a bit."

Asked if buyers should stay on the sidelines, waiting for prices to stabilize, Gibbons says, "I think a lot of buyers are staying on the sidelines, waiting for prices to drop further."

What does the housing market shift mean for renters?

"Rents are going up. Sorry, Harry. Go buy a house," Gibbons says.