Housing Market Going Forward

The last two years are going to go down in the history books. And no, we are not talking about the pandemic, Doge Coin, or any other buzzword of the “pandemic era.” What we are here to talk about is the housing market. The housing market since the early days of the pandemic has been confusing, hard to follow, and historical.

First, we saw a flock to housing after the Fed cut rates. Next, we saw a severe lack of housing compared to record high demand. Then, we saw inventory hit record lows at the same time home prices hit record highs and mortgage rates remained at unprecedent low levels. Finally, we saw a historic increase in mortgage rates to start 2022. This volatility is usually reserved for more liquid assets, such as stocks. However, we are here to try to navigate this housing market to the best of our (and many industry experts) ability. Here is a look at the housing market going forward.

Housing Market Shift

As we see this shift away from easy monetary policies, we should see a shift in the real estate market. While real estate is typically a slow-to-react industry, this year has been an anomaly. Mortgage rates shot up from sub-3% to over 6% at the highs this year. That level and velocity of increase in mortgage rates has never been seen before. This is huge for those buyers who could qualify at 3% rates, but not at 5 or 6%. As home prices also seemed to skyrocket (breaking year-over-year records and increasing over 21% from June to June), buyers were squeezed. This trend will likely continue, but at a slow pace (hopefully).

Like we mentioned above, home prices are rising. In fact, they are still projected to increase this year by at least 10%. This is largely due to the supply and demand dynamic in the market we are seeing. As buying conditions subside, the buyer’s market we have seen could vanish quickly. Homes are starting to sit on the market longer, appraisals come in short, and contingencies are starting to look smart (as the always were, regardless of the market). With home prices forecast to climb by an average of 10.3%, we can still see some upper headroom for home prices. Also, it is important to note, not a single analyst is predicting a home price drop in the next 12 or 18 months.

Housing Market Going Forward: Rates And Sales

Mortgage rates are volatile when the Federal Reserve is making adjustments to their monetary policy. According to Lawrence Yun, economist at NAR (National Association of Realtors):

“If consumer inflation continues to rise, then mortgage rates will move higher. Rates will stabilize only when signs of peak inflation appear. If inflation is contained, then mortgage rates may even decline somewhat.”

Finally, coming into the end of the year, we should likely see a home sales moderation. Forecasts for home sales have been revised downwards already this year, largely due to the combination of lack of supply for new buyers, as well as rising rates. Most people are deciding not to move now as well, as mortgage rates are still under ‘recency bias,’ causing people to believe they are high. However, sub-6% mortgage rates are actually below the historical average, and 10-year average. Softening demand due to higher mortgage rates could actually pose as a win-lose for the housing market.