What are the prospects for the US housing market

While some buyers have moved on, others have suspended their home search or given up altogether as rising costs have put the property out of reach.

But as recession fears loom for the broader economy, the housing market is showing signs of slowing. Sales of new homes are down and construction has stalled. Sales of existing homes have fallen and are trending below 2019 levels. As mortgage rates remain above 5%, claims have fallen to their lowest level in 22 years.

“Accessibility is the biggest problem in the housing market today, and higher rates will make it worse on a monthly basis,” said Skylar Olsen, chief economist at Zillow.

Mortgage rates will stabilize

The big surprise for those looking to buy a home during the first half of the year was how mortgage rates went up so much, so fast. Interest rates for a 30-year fixed-rate mortgage have risen from 3.22% in early January to a high, so far this year, of 5.81% in June, according to Freddie Mac. average rates stood at around 5.5%.

What will my monthly mortgage payment be?

“Someone who buys the same house today they wanted to buy last year will see a 50% increase in their monthly payment,” said Lawrence Yun, chief economist for the National Association of Realtors. “People’s incomes don’t increase by 50% in a year. Homebuyers are frustrated. This year they are totally in disbelief that they don’t have the money to buy at a 6% mortgage rate.”

The cost of financing a home is so high that nearly 15% of people who signed a home purchase contract in June withdrew, according to Redfin. This is the highest share of canceled home sales since April 2020, when the market nearly came to a halt due to the pandemic.

Ma Yun said that while mortgage rates may rise or fall in the months ahead, the biggest leaps have already taken place.

“We may be at the top on mortgage rates,” he said.

Yun noted that mortgage rates may have largely already “priced” the Fed’s current and projected interest rate hikes. He expects mortgage rates to stabilize near 6% by the end of the year. home sales will normalize once mortgage rates are more stable.

Stocks will increase compared to last year

As the market slows, potential buyers who continue to search for a home will have less competition and more homes to choose from, offering more breathing space than the fast-paced market of the past couple of years.

Economists were largely in line with their house price projections for the first half of the year, with annual price growth peaking in the spring and easing as the year progressed. But the number of sales at this point in the year is far below expectations, said Jeff Tucker, an economist at Zillow.

“Sales volume has taken a much bigger hit than prices,” he said. “Buyers have resisted those mortgage rate hikes longer than we thought, which kept prices high. But some buyers have started to drop out.”

Yun said he expects 2022 sales to decline by about 13% from last year.

The result, Tucker said, is that as sales volumes continue to decline, inventory will increase.

The surge in demand to buy a home over the past couple of years has led to low inventory of homes to buy and this has pushed prices higher. 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 increased 9.6% from May and 2.4% from a year ago, according to NAR.

House prices will rise more slowly

The median price of a home hit a record high of $ 416,000 in June.

But the pace of price growth has slowed lately. Average house prices for existing homes increased 13.4% in June from the previous year, compared to a 23% peak in house prices in June 2021, according to NAR.

How much house can I afford?

In addition, the prices of new homes are falling. The average sale price of a new home under construction fell 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.

“This is the biggest crack in home price inflation yet,” said Robert Frick, a business economist at the Navy Federal Credit Union. “If existing home prices follow suit, we could finally see a break in the annual hikes that have excluded millions of Americans from the housing market.”

Newly built homes account for about 10% of transactions and existing homes the remaining 90%. And the prices for the vast majority of the market are not going down.

Yun said he expects house prices to rise by 11% this year. That’s less than the 16.9% yoy increase from 2020 to 2021, but more than he predicted earlier this year.

As higher mortgage rates reduce buyer demand, inventories will increase and sales will decrease, which should help moderate prices for the rest of the year.

“The homes could stay on the market longer, there will be more properties with price cuts,” Yun said. “Buyers who do the deeper homework may be able to find a house with a lower price or get a better price negotiation.”

Accessibility will remain a challenge

Affordable housing is the worst since 1989, with the exception of the 2004-2008 housing bubble, wrote David M. Dworkin and Bill McBride in a report for the National Housing Conference.

But during the housing bubble, the lack of affordability was driven by mortgages offering teaser interest rates of up to 1%, reset to a level that homeowners couldn’t reliably pay. And in the 1980s, homes weren’t affordable due to incredibly high interest rates, with 30-year fixed-rate mortgage rates ranging from 9% to over 18%.

Today’s market is different, the researchers write. “The rise in housing costs is driven by the combined impact of apparent underproduction between 2008 and 2020, housing supply chain failures from 2020, and increased demand from 2020.”

Should I rent or buy a house?

And it’s not likely to change much by the end of the year.

Construction of new homes has stalled as builders wait to see how the current supply of homes sells before starting further construction.

Sam Khater, Freddie Mac’s chief economist, said he expects homebuyer demand will continue to cool at a more normal pace of activity, but that many people’s ability to buy a home will remain difficult.

“The Federal Reserve’s action to help manage inflation has created significant volatility in mortgage rates and, by extension, the housing market,” Khater said. “Although house price appreciation will grow at a more moderate pace, house prices remain high relative to homebuyers’ incomes. Taken together, these factors are exacerbating affordability challenges and causing a market slowdown. real estate “.

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