The US housing market is at a turning point after a two-year boom, but where precisely is it turning?
The spring market for home sales
was expected to be active. Instead, the season was a failure, derailed by a sharp
increase in mortgage rates so sharp that even industry insiders were astounded
by its market-freezing impact.
With its eye-popping price hikes
and bidding battles that left buyers defeated and sellers thrilled, the
frenetic climate we had become accustomed to suddenly looked to be a thing of
the past. Sellers started to realize that bids of $100,000 or more over asking
might not come in, as purchasers watched from the sidelines and recalculated
their much bigger mortgage payments.
What is the Current State of Interest Rates?
Unless you have cash on hand,
purchasing a property has become much more expensive.
In response to actions taken by
the Federal Reserve to limit inflation, mortgage rates have nearly doubled
since December, rising to about 6 percent, the highest level since 2008.
Many buyers simply cannot afford
that kind of increase, especially when it is added to current home prices,
which, according to Zillow, increased by more than 20% between May 2021 and May
2022.
While rates aren’t expected to
return to the high levels of the 1970s and 1980s, when they peaked at 18.4%,
experts do predict that they will continue to rise until inflation starts to
decline.
Mortgage rates will have peaked
at the same time as inflation, and that is really the key component.
The sudden change caught
everyone off guard, not just the buyers. Many industry experts had to adjust
their forecasts for the coming months.
Can We Expect Home Prices to Fall?
The days of double-digit
percentage price increases are probably over, at least for the time being.
However, prices are unlikely to fall, in part because there are more
individuals looking for homes than there are available properties to buy and
because inventory is relatively low.
People who are hoping for a
decline in property prices will likely be dissatisfied, as this is not 2008 all
over again; there is no housing bubble in sight.
To Buy or Not to Buy?
Regardless of how it may seem,
the market is still in favor of sellers. But with so many conflicting
indications, purchasers might wish to hold off until the summer or possibly the
spring of the next year.
Also, keep in mind that rates
change. The mortgage rate is not fixed, in contrast to the cost of a home,
which is.
As the market cools, it might go
back to something akin to a pre-pandemic normal, where houses take a while to
sell and values rise gradually. There may be certain fair requests that buyers
can start making, such as those for appraisals, inspections, and mortgage
contingencies.
Conclusion
Housing despises ambiguity.
Uncertainty is the biggest threat to the housing market, and there is plenty of
it right now.
What is occurring in the rest of
the economy will be the main X factor. All bets are off and we’re in a new
world if we start to see significant changes in the economy.
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