Updated: Sep 26, 2022
TGFLIP MARKETING AGENCY
Jun 17th, 2022
1. Quick Intro
Low inventory, stiff competition, and large price increases have harmed buyers since 2020, but quickly rising mortgage rates are making it much more difficult to find an affordable house.
In Gallup's annual Economy and Personal Finance Poll, conducted in April and released in early May, 69 percent of respondents said now is a terrible time to purchase a house — the first time in the poll's 44-year history that a majority of Americans felt that way.
Higher mortgage rates imply that many buyers can no longer afford homes in certain price ranges. The issue is that even basic single-family homes now cost the same as luxurious apartments did a few years ago, so buyers are forced to choose between waiting for additional inventory to enter the market or moving to a more reasonable location. Many others are expecting a price decrease, but it may not happen in the near future.
“The U.S. housing market is at the beginning stages of the most significant contraction in activity since 2006.”
[Len Kiefer, deputy chief economist at Freddie Mac]
There are definitely reasons contributing to the majority opinion, few available houses on the market, increasing interest rates, etc. But it doesn't imply it's a poor time to buy, or that it's a poor time to be a homeowner. In fact, present conditions may indicate that current homeowners may sit back and relax.
2. Increasing Prices
According to the latest Federal Housing Finance Agency (FHFA) House Price Index data, home prices increased 18.7 percent from the first quarter of 2021 to the first quarter of 2022. Mortgage rates climbed dramatically in March and April, increasing the cost of purchasing a house; however, those large surges may level down.
Because of the basic supply and demand mismatch in the housing market, most analysts predict rising home prices for the remainder of the year.
Fannie Mae forecasts a 10.8 percent increase in prices in 2022, but a substantial slowdown in 2023, with prices rising only 3.2 percent.
According to a recent Zillow study, 60 percent of housing experts say we are not in a bubble, citing strong fundamentals such as tight inventory and shifting housing demands as the rationale for the recent double-digit home price growth.
While buyers struggle in this market, homeowners are seeing their house prices rise. Homeowners are enjoying significantly greater equity benefits as property values rise. According to a recent CoreLogic analysis, U.S. homeowners would have $60,000 in equity in the first quarter of 2022.
Despite the fact that mortgage interest rates have been historically low over the last two years, homebuyers have struggled to discover available properties. When buyers are allowed to make an offer on a house, heated competition among buyers has driven up prices, and that tendency is expected to continue in 2022.
According to the Federal Reserve Bank of St. Louis, the median house selling price in the first quarter of 2022 was $428,700, about 19% more than the median home sale price in the first quarter of 2021, which was $369,800.
Higher mortgage rates raise the entire cost of a property for buyers above and beyond already outrageous pricing. While this is likely to discourage some buyers from purchasing a property this year, it does reduce the need for active buyers to worry about bidding battles and making concessions in order to persuade a seller.
Here's a proposed road map if you're looking to buy a property right now:
Begin with a budget and make a promise to yourself to stick to it. You may still find yourself in a bidding battle in today's market, but this may be problematic because it's tempting to want to win a property at any cost, which might wind up breaking your budget.
With fewer options, some buyers may make more sacrifices than they would in a balanced market, resulting in a costly home that may not satisfy their demands.
The issue is that you can't return the property if you find you overpaid or just acquired a location you don't like. The seller's charges can amount to up to 10% of the home's sale price, so you may end up losing money if you sell it.
“Single-family housing inventory is the lowest in approximately 40 years.”
Buyers benefit from price stabilization, while sellers do not suffer as a result. Prices in most markets are anticipated to grow further, although at a slower rate than in the previous two years.
The rate of house value increase over the last two years has been unsustainable in the long run, it has just been too fast for buyers to keep up for much longer.
Homeowners can be pleased, though, because the average yearly equity gain for homeowners is more than the average pay rise. Nonetheless, since interest rates stay high in comparison to prior years, expect fewer homeowners to put their property on the market.
Most sellers will also need to buy a new house to move into, and most do not see the need to exchange their existing low-rate mortgage for one with a higher rate and less equity.
“The median home price in 2022 is $357,300.”
Rents, like housing prices, have risen dramatically in many of the United States in the recent year.
According to Zumper's May National Rent Index, rentals on a national scale reached an all-time high in May, with one-bedroom apartments rising 12.8 percent year over year and two-bedroom apartments rising 13.9 percent year over year.
However, the 0.3 percent month-over-month gain for a one-bedroom and 0.7 percent for a two-bedroom might be a hint of weakening.
The research does caution that rents are not expected to fall significantly and while housing prices have reached an affordability ceiling, rents in many cities still have a long way to go before reaching the same level.
“Nationally, rents rose a record 11.3 percent last year.”
Here are some real estate market trends to watch in the second half of 2022:
Rising interest rates make property ownership more expensive, and homeowners are hesitant to sell.
The best moment to refinance a mortgage has past.
The new construction sector is also experiencing affordability difficulties.
Rents are still growing, but not as quickly as they were last year.
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The information provided is not intended to be a source of advice or credit analysis with respect to the material presented, and the information and/or documents contained on this website do not constitute investment advice. The ROI varies from case to case, and TGFLIP Marketing Agency would not be responsible for any loss carried out regarding this information.
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