In last week’s article, we discussed how buyers could be feeling some relief as the market begins to cool off. In this week’s article, we will discuss where we can expect the housing market to go over the coming months. We will be referencing this article from CNN.
If you’re a prospective home buyer, the 2022 market probably isn’t going the way you hoped it would.
Home prices have reached all-time highs and mortgage rates are rising much faster than anyone predicted.
While some home buyers elected to continue their search, many others have paused their home search because these rising costs have made home ownership unaffordable.
But as fears of a recession continue to loom, the housing market is showing signs of slowing down.
Sales of new construction homes have dropped while sales of existing homes are trending below the levels we saw in 2019.
As mortgage rates remain above 5%, applications have fallen to the lowest numbers we’ve seen in 22 years.
Despite the market beginning to cool off, neither mortgage rates nor home prices are expected to make a dramatic fall so affording a home is likely to remain a challenge in the coming year.
The Federal Reserve announced another rate hike this week, which means mortgage rates will remain volatile for some time.
Here are four predictions about where the market is headed.
Mortgage Rates Will Stabilize
In the beginning half of this year, home buyers were shocked to see how quickly and how much mortgage rates rose. Interest rates for a 30-year, fixed-rate mortgage rose from 3.22% at the beginning of January to a high, so far this year, of 5.81% in June, according to Freddie Mac. In recent weeks, average rates have settled in around 5.5%.
The cost of financing a home is so great that nearly 15% of people who signed a contract to buy a home in June backed out, according to Redfin. That’s the highest share of canceled home sales since April 2020, when the market all but stopped due to the pandemic.
Inventory Will Rise From Last Year
As the market continues to cool off, buyers will begin to have less competition and more homes to choose from.
Soaring demand to buy a home during the past two years led to a record low inventory of homes to buy and that pushed prices up.
In June, inventory saw its first year-over-year turnaround in three years. The number of homes available for sale at the end of June was up 9.6% from May and 2.4% from a year ago, according to NAR.
Home Prices Will Rise More Slowly
In June, the median price of a home reached a record high of $416,000.
But the pace of price growth has been slowing lately. Median home prices for existing homes were up 13.4% in June from the year before, compared with the 23% spike in home prices in June 2021, according to NAR.
In addition, prices on new construction homes are actually falling.
The median sales price of a new construction home dropped to $402,400 in June, down from $444,500 in May, according to the US Census Bureau and the Department of Housing and Urban Development.
Affordability Will Remain a Challenge
Home affordability is the worst it’s been since 1989, with the exception of the housing bubble from 2004-2008, according to a report from the National Housing Conference.
But the difference between the housing bubble and what we’re experiencing in today’s market is that during the housing bubble, the lack of affordability was driven by mortgages offering interest rates as low as 1% that would reset to a level the homeowners could not afford to pay afterward.
In the 1980s, homes were not affordable due to incredibly high-interest rates, spanning from 9% to 18%.