The 2021 real estate market was defined by low supply, low mortgage rate and high demand. These factors set home values soaring month after month. Now that the spring market of 2022 is in full swing, the news of rising mortgages rates leaves real estate buyers, sellers and professionals wondering how home prices may be impacted.
In an article published by MarketWatch.com, industry experts were asked just this question. The predictions varied slightly, but a common theme emerged. According to the reporter, Alisa Wolfson, one expert believes that the continued shortage in the supply of homes will be a factor in the continued rise in home prices. Another opinion, with regards to rising mortgage rates, indicates that almost 30% of purchases are cash transactions, so rates don’t affect these buyers, so demand will continue to be high. Further, experts believe that, even buyers that need to secure a mortgage have a sense of urgency to purchase a home. These buyers may readjust their budget based on the increased rates, but will continue to search for and purchase homes.
It would appear that many experts agree, the data and trends support the belief that the real estate market will continue to see high demand and, therefore, rising home prices. The rise may cool off a bit but its highly unlikely prices will see drastic decreases.
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For the past several months, the news about the U.S. Housing market has repeated a very similar message month after month- high demand and low supply is driving up home prices. In fact, the average annual home appreciation rate was recorded at 19.2% in January 2022, a record high increase.
In an article published by Fortune.com, it is stated that the number of mortgage applications recently decreased a bit, most likely in response to an increase in mortgage rates. Nevertheless, it isn’t anticipated that this will result in a significant decrease in demand for houses. Reporter, Will Daniel, states, “After all, in March, active home listings in the U.S. were down roughly 18.6% compared to a year ago. And the U.S housing market is facing a shortage of nearly 6 million new single-family homes.” It will take a bit more time for the housing market to balance out.
However, home buyers should remain optimistic. Realtor.com surveyed prospective home sellers and reported that 64% of these home owners anticipate listing their home for sale within the 2022 calendar year. The survey also might give the first time home buyers, who have largely been priced out of the market, a glimmer of hope. More than half of the homeowners who indicated they would be listing their home plan to list below $500,000, which some may consider “relatively affordable”.
Those waiting for new construction homes may have to continue to be patient. “We’re at the lowest level of inventory on record back at least 23 years,“ according to Redfin’s deputy chief economist Taylor Marr. “So housing starts are not quite making that large of a dent in terms of the inventory shortage just yet.”
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Photo Credit: Tierra Mallorca
Americans who have been paying attention to the housing market realize that prices have been steadily climbing over the past several months. The fact that the supply of homes on the market has not been able to keep up with the demand for homes isn’t helping control housing prices. Now, those looking to purchase are now going to have to face increased mortgage rates as well.
Since at least 2018, mortgage rates have not exceed 5% for a 30 year mortgage. In reality, the rates above 5% in 2018 didn’t last long. Prior to that short lived stint above 5% in 2018, the 30 year mortgage has remained below 5% since 2011. Mortgage rates have been slowly increasing over the past several weeks as the U.S. responds to inflation and the economic impact on a global level due to the crisis in the Ukraine. The 30 year mortgage now finally surpassed 5% having jumped to 5.02%. According to an article published by CNBC.com, rates one year ago were at 3.38%.
With news of the continued rate increased coupled with the steady climb of housing prices, which have been reported to be up 20% since February 2021, buyers will feel the hit and many might just be priced out of some markets.
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In many respects, the COVID-19 pandemic appears to moving optimistically toward its end, with many aspects of American’s life returning to more normal activities. Nevertheless, some American homeowners who were severely impacted by the shutdowns, and were able to take advantage of the forbearance, are still climbing their way out of the financial challenges.
As these homeowners exit forbearance, the Federal Housing Administration wants to help them navigate the next phase. In an article published by HousingWire.com, information about an FHA program where an option to enter a 40 year loan modification with partial claim is described. Reporter, Flavia Furlan Nunes states, “In September, the FHA posted a draft mortgage letter proposing a 40-year loan modification combined with a partial claim. The goal is to help borrowers reach the targeted reduction of 25% of the monthly principal and interest portion of their mortgage payments.”
It goes on to detail a proposal from Ginne Mae (Government National Mortgage Associate- GNMA), to introduce a 40 year mortgage. Michael Drayne, Ginnie Mae acting executive vice president, explains, “We have begun the work to make this security product available because an extended term up to 40 years can be a powerful tool in reducing monthly payment obligations with the goal of home retention.” This offer would follow a loan modification term of 40 years already offered by Fannie Mae and Freddie Mac.
Read the entire article for more information about the programs and how homeowners have fared in paying some of their mortgage payments during forbearance.
As 2022 neared, real estate professionals began to forecast the housing market for the spring of 2022. Many experts predicted that the drastic increase to home values that Americans saw during the height of the pandemic, would begin to slow down significantly.
Nevertheless, as March 2022 approaches, some real estate experts are adjusting their predictions. In an article published on Nasdaq.com, Marc Rapport reports that, for example, the Zillow economists adjusted their initial prediction of a 11% increase in home values for 2022 to a predicted 16.4% increase. The report prepared by Zillow explained, “The robust long-term outlook is driven by our expectations for tight market conditions to persist, with demand for housing exceeding the supply of available homes.”
Yet, some economists don’t see that type of growth happening again this year. Lawrence Yun, the National Association of Realtors chief economist, predicts growth around 3-5% for 2022, continuing through 2023. “The good news is that home prices should begin to normalize later in 2022 as more homes come on the market,” Yun said in Rapport’s article.
Of course factors such as inflation, home price increase and mortgage rates affect affordability of home for many Americans. Even as home prices level out, these other economic factors will surely impact what the future holds for the real estate market. Read the entire article.
It has been a seller’s market in the U.S. real estate market for the past several months. Many consumers realize the low mortgage rates, coupled with low housing inventory have driven up home prices. Buyers have been met with bidding wars and have purchased homes over asking price. However, in some situations, the buyer’s agent isn’t getting as big of a cut, in the form of commission, as they have historically.
According to an article published in MarketWatch.com, “The average commission rate for these agents was 2.63% of the sales price of a home as of the three-month period ending Nov. 30, down from 2.69% a year earlier.” In fact, it’s the lowest rate since Redfin began tracking the data in 2017. The buyer’s agents are seeing smaller commission rates because, sellers, who determine and ultimately pay the commission rate to both agents, are offering anywhere from 2-2.5% commission to buyer’s agents instead of the historical 3%. Simply put, the homes are in such demand sellers don’t have to offer larger commissions to the buyer’s agent.
Coincidentally, real estate buyer’s agents’ commission rate has been the subject of some class action law suits. It has been argued that the “set-up is unfair to consumers” and could eventually result in buyers having to pay their own agent’s commission instead of it being the responsibility of the seller. This is a topic to continue to watch because it, coupled with eventual decline in home prices, could result in an overall reduction in the dollars in agents’ pockets.
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In an article published on Realtor.com, it was stated, “The Fed hinted … that a quarter-percentage-point increase is soon coming to its benchmark short-term borrowing rate. This would be the first increase since December 2018”. The reason for this predicted move is to help ease the rate of inflation.
This increase directly affects the rate at which banks lend money to each other. However, indirect impacts of this increase would be increases to rates for savings accounts, and of course, rates for borrowing. According to this article, “That likely will put pressure on mortgage rates, and even though the Fed’s benchmark rate doesn’t directly affect home borrowing rates, they do often have an impact.”
Borrowers and lending professionals have already seen slight increases in long term rates for loans such as the 30 year mortgage. At the end of January, the rates averaged just over 3.5%, in comparison to the 2.77% borrowers were seeing January 2021. Some experts predict rates could increase to 4% by the end of 2022.
Nevertheless, rates at even these increased percentages, are still hovering at historically low interest rates. Read the entire article for more details.
U.S. home prices have consistently risen each month in comparison to the prices in 2020. As many Americans are aware, the onset of the pandemic created a high demand for homes and with the short supply and low rates, prices increased significantly.
However, a recent report indicates the price increases may be slowing down. CNBC.com reports in an article written by Diana Olick, “Home prices rose 19.5% in September year over year, down from a 19.8% annual gain in August, according to the S&P CoreLogic Case-Shiller National Home Price Index. That is the first decrease in the annual gain since May 2020.”
Some cities continue to see significant increases in pricing compared to September 2020. For example, Phoenix home prices grew just over 33% compared to September 2020. Even some of the cities in America that reported the smallest gains still have increases of more than 10%.
The managing director at S&P Dow Jones Indices, Craig Lazzara, may have coined the most accurate description of this data: “Deceleration”. Prices are still strong, it just appears the growth is slowing down a bit. The combination of an anticipated increase of homes coming on the market with mortgage rates slightly increasing are potential factors.
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Mortgage rates increased slightly this summer, yet the price of homes seemed to continue rising in response to the high demand for homes. However, according to an article published by Yahoo! Finance, the housing boom may be winding down. Sales of new home fell 6.6% from May to June and the median home price only rose 6%, a stark drop from May’s gains reportedly in the 15-20% range.
In the article, reporter Georgia Tzanetos offers some possible reasons for the dip in demand and possible outcomes. The article indicates “Chief Investment Officer at the Bleakley Advisory Group Peter Boockvar told CNBC that ‘the moderation in home sales is likely a combination of sticker shock and the slowdown in the ability of builders to finish homes because of a variety of delays.’”
The next several months will reveal the cause behind the slowing of demand and price increases. If buyers are hesitant to purchase a home right now, it may be due to the “sticker shock” of rising home prices. These buyers may begin to search for homes again and even make a purchase if they see home prices decrease in the next few months. However, the lag in demand may be caused because, simply, “everyone who needed a home bought one…”, which would likely result in prices to continue to fall. As the remainder of the summer market plays out, real estate professionals will be watching closely anticipating what’s next for the real estate market.
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As the COVID-19 pandemic began to spread across the United States last spring and states announced shut downs, many Americans found themselves unemployed or underemployed. As a result, the federal government took swift action to provide mortgage payment relief by allowing homeowners to enter forbearance. A year later, as of March 2021, 2.5 million homeowners were still in forbearance, according to the Mortgage Bankers of America.
Realtor.com published an article, noting the opinions of experts who explain that, despite this alarming number of U.S. homeowners behind on payments, a potential foreclosure crisis is unlikely. In the article, reporter Sharon Lurye explains, the current housing market conditions are likely to provide a safety net for many of homeowners. Houses, in many parts of the United States, continue to be in high demand and the inventory remains low. Coupled with low interest rates, homeowners behind on payments, possible nearing the end of their forbearance, could still decide to sell the home for a profit. Additionally, as Americans getting their footing and learn to adjust to the current conditions, forbearance rates dropping nationwide.
Nevertheless, there are still areas of the country where homeowners are not only seriously behind on payments, but the housing market is not as strong due to weak economies and lack of employment. These homeowners will continue to need assistance by reaching out to their lender with the hopes of renegotiating the terms of their loan in a way that makes it feasible to make the payments. Still, some may decide to just sell and move to a rental property, assuming they can find a property to rend.
The good news, it seems that the U.S. isn’t headed toward a wide-spread foreclosure crisis, however there are Americans that continue to struggle and may for months and years to come.
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