Article from Keeping Current Matters July 12, 2022
The housing market is at a turning point, and if you’re thinking of buying or selling a home, that may leave you wondering: is it still a good time to buy a home? Should I make a move this year? To help answer those questions, let’s turn to the experts for projections on what the second half of the year holds for residential real estate.
While one of the big questions on all buyers’ minds is where will mortgage rates go in the months ahead, no one has a crystal ball to know exactly what’ll happen in the future. What housing market experts know for sure is that the record-low mortgage rates during the pandemic were an outlier, not the norm.
This year, rates have climbed over 2% due to the Federal Reserve’s response to rising inflation. If inflation continues to rise, it’s likely that mortgage rates will respond. Greg McBride, Chief Financial Analyst at Bankrate, explains it well:
“Until inflation peaks, mortgage rates won’t either. Without improvement on the inflation front, we don’t know where the interest rate ceiling will be.”
Whether you’re buying your first home or selling your current house to make a move, today’s mortgage rate is an important factor to consider. When rates rise, they impact affordability and your purchasing power. That’s why it’s crucial to work with a team of professionals, so you have expert advice to help you make an informed decision about your best move.
This year, particularly this spring, the number of homes for sale has grown. That’s partly due to more homeowners listing their houses, but also because higher mortgage rates have helped ease the intensity of buyer demand. Moderating buyer demand slows down the pace of home sales, which in turn helps inventory rise.
Experts say that growth will continue. Recently, realtor.com updated their 2022 inventory forecast. In the latest release, they increased their projections for inventory gains dramatically, going from a 0.3% increase at the beginning of the year to a 15.0% jump by the end of 2022 (see graph below):
More homes to choose from is great news if you’re craving more options for your home search – just know that there isn’t a sudden surplus of inventory on the horizon. Housing supply is still low, so you’ll need to partner with an agent to stay on top of what’s available in your market and move fast when you find the one. It’s not going to be easy to find a home, but it certainly won’t be as difficult as it has been over the past two years.
Due to the imbalance between the number of homes for sale and the number of buyers looking to make a purchase, the pandemic led to record-breaking increases in home prices. According to CoreLogic, homes appreciated by 15% in 2021, and they’ve continued to rise this year.
Even though housing supply is increasing today, there are still more buyers than there are homes for sale, and that’s maintaining the upward pressure on home prices. That’s why experts are not calling for prices to decline, rather they’re forecasting they’ll continue to climb, just at a more moderate pace this year. On average, homes are projected to appreciate by about 8.5% in 2022 (see graph below):
Selma Hepp, Deputy Chief Economist at CoreLogic, explains why the housing market will see deceleration, but not depreciation, in prices:
“The current home price growth rate is unsustainable, and higher mortgage rates coupled with more inventory will lead to slower home price growth but unlikely declines in home prices.”
For current homeowners looking to sell, know your home’s value isn’t projected to fall, but waiting to make your purchase does mean your next home could cost more as home prices continue to appreciate. That’s why, if you’re thinking about buying your first home or you’re ready to make a move, it may make sense to do so now before prices climb higher. But rest assured, once you buy a home, that price appreciation will help grow the value of your investment.
Whether you’re a homebuyer or seller, you need to know what’s happening in the housing market, so you can make the most informed decision possible. Connect with a real estate advisor to discuss your goals and what lies ahead, so you can determine the best plan for your move.
Take a look at the Santa Clara Market Report below.
Something unexpected happened last year: Even as the economy was in the dumps with the jobless rate above double digits, the housing market went on a historic run. Since the onset of the pandemic, the median home price in the United States is up 24%.
But that hot housing market is finally starting to show signs of cooling.
“Things are still good, they’re just not frenzied anymore. Which, to be honest, frenzy in the housing market never really leads to good behavior,” Devyn Bachman, vice president of research at John Burns Real Estate Consulting, told Fortune.
As housing continues to shift slightly in buyers’ favor, there are six things buyers and sellers need to know about the market.
Between April 2020 and April 2021, the number of homes listed on Realtor.com fell 53% as buyers snapped up everything they could. Sometimes buyers were even forgoing final home inspections.
In recent months that has reversed, with inventory finally rising again. Since May, inventory has climbed 23%.
As Fortune reported last week, increased inventory is good news for homebuyers who’ve been pitted against one another in one of the most competitive housing markets in the country’s history. This steady uptick in inventory, Bachman said, is a clear sign that some of the crazy is beginning to leave the market. It has also coincided with a slowdown in home price appreciation.
“When you’re talking 17%, that is four times national income growth. That’s not sustainable, that’s not healthy,” Bachman said. This buyer pushback was inevitable and continues to spread across the nation, she added.
But the cooling in the market isn’t only a result of buyers’ fatigue. It’s also because seasonality is returning. Historically, the housing market cools in the summer and fall as buyers get absorbed into vacations and the return of school. But that didn’t happen last year as vacations were postponed, and many schools went online. This year, that seasonality returned in a big way.
“It’s seasonality on steroids this year, because you locked people in their homes for a year and half, and finally people took summer vacations,” Bachman said. That return of seasonality has given inventory some breathing room to finally rise.
While the market is cooling, it doesn’t mean we’re headed for a crash. In fact, forecasts don’t even show prices falling. CoreLogic forecasts a modest 3.2% home appreciation over the next 12 months. If that comes to fruition it would still mean relief for home shoppers—given prices jumped 17% in the past year.
“What we see is a more normalized pricing environment going forward, one that is not nearly as frenzied as what we’re seeing today. But by no means are we calling a pricing correction,” Bachman said.
Amid the pandemic, international travel fell off a cliff. Subsequently, international homebuying also fell. That had a negative impact on international markets like Manhattan and San Francisco.
But in recent months more of those buyers, particularly from Europe, are expected to come back as international travel begins to recover, Anthony Hitt, CEO of Engel & Völkers Americas, told Fortune. He expects that to continue to aid in the recovery of luxury markets in big U.S. cosmopolitan areas.
At the onset of the economic crisis, the Federal Reserve turned to one of its most powerful tools: lowering interest rates. For much of the past year, the average 30-year fixed mortgage rate has been below 3%—something that attracted a wave of homebuying and mortgage refinancing.
But the combination of an improved economy and rising inflation is increasing the odds that the Federal Reserve will begin to raise rates.
Freddie Mac forecasts that by the end of 2022 average mortgage rates will climb to 3.7%—up from its current 2.87%. Of course, any upward movement in mortgage rates puts negative pressure on the housing market.
At the end of July, the foreclosure moratorium, which prevented foreclosures on federally backed mortgages, came to an end. Now, the mortgage forbearance program, which allows some borrowers to pause their payments, is set to begin to wind down on Sept. 30. In total, more than 1.7 million mortgage borrowers are still protected by the forbearance program. That’s 3.5% of U.S. mortgages.
What does the end of the forbearance program mean for the housing market? To answer that question, Fortune recently asked researchers at Home.LLC to run the numbers. Their forecast finds the end of the program could cause housing inventory to rise another 11% this year.
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