Home Prices Moderate
As we have seen prices of every type of good and service rise in the past year, real estate is no exception. According to data received from the S&P Case-Shiller Home Price Index, home prices rose on average anywhere from 17-19% across the nation. While these gains are unprecedented and seem to have outpaced most asset classes, there still is hope for buyers. The bright side for potential buyers shows that the pace of price increases has began slowing. Since September, the price acceleration of all types of homes has started to stall and even increase less month-to-month. Even when home prices moderate, prices remain elevated above historic norms.
Home Prices Moderate As Rates Increase
An increase in mortgage rates has a direct correlation on the real estate market as a whole. With mortgage rates rising swiftly to begin 2022, many home buyers have self-selected themselves out of home contention. This is because higher costs to borrow and higher home prices overall typically ween-out the lower end of buyers. According to a survey conducted by S&P, many potential home buyers have began to implement strategies, such as saving more disposable income, in order to become successful in a competitive market.
With home prices expected to remain elevated but slow, this may be the time for potential buyers to strike as the market takes a breath. Unlike most instances of drastic real estate price increases, these price increases are in fact due to the pandemic. The pandemic led to easy monetary policy, record low interest rates, and stimulus. This led to the record demand for housing, and long-term led to higher prices and low inventory. Hopefully, when we begin to see rates increase throughout this year, we will see prices stall and inventory slowly pick up.
What It Means For Buyers, Sellers, And The Market
Many experts are predicting that real estate prices will continue to increase this year, at about 6%, compared to 17%. While this may not seem like a lot, a 25% increase in any investment in 2 years is often times unheard of. With prices continuing to increase alongside the rates rising, this is going to be detrimental to buyers. As housing continues to eat up more of a homebuyer’s budget, buyers will have to continue to find ways to make it work. In the case for buyers, the market in 2022 will continue to be rough. This is largely because inventory will remain low, more serious buyers will be all that are left, prices will increase as well as rates.
For sellers, this is the prime time to sell. The market is still a seller’s market and will continue to be one throughout the year. Sellers continue to hold the upper hand, as days on market are near record lows, equity is near record highs. As sellers begin to list their homes more in the coming months, we will see if the demand is still there. On paper, the buyer demand is still there. The true test will be when they actually have the opportunity to buy. For the real estate market as a whole, it does look to slow down. However, it will remain strong in 2022. Many experts are predicting that we will continue to see a strong market well into the year, regardless of rate increases. With four rate increases priced into the market in the coming year, real estate will slow. Slow does not mean crash, so all the Facebook economists can take a step back.