Buyers Could Be Winners Soon
Over the last few weeks, we have seen a shift in the housing market. This is largely due to the Federal Reserve’s campaign to stamp out decades-high inflation by raising interest rates. However, just because the market is shifting does not mean a crash is inbound. In fact, we will likely see a shift back towards a weaker seller’s market, and maybe even a neutral market (~6 months of supply). For buyers, this could lead to many possibilities opening up around the corner, making the time to be even more clear. Here is why buyers could be winners soon in 2022.
Buying In Today’s Market
For those who have kept up with economic data, home prices increased by 20.6% in March from March the year earlier. This is a record increase according to NAR (National Association of Realtors) and shows the dysfunctionality of the housing market. While prices are rising and mortgage rates have soared in 2022, there could be light at the end of the tunnel. More sellers are starting to list their homes in order to beat rates and a capitalize on equity gains. Inventory will likely tick up over the next few months to years as well. Buying conditions may start to prove more favorable in the coming weeks to months, as the market is situated.
Mortgage rates are what finally broke the FOMO and rush to housing as an inflation hedge. The rise we have seen in mortgage rates is nothing short of historical. In fact, this is the fastest that mortgage rates have ever increased on record, and soared well above the 3.2% projections for end of year. Earlier in the month of May, we saw mortgage rates soar to their highest level since 2009. Mortgage applications have also fallen to their lowest levels since the end of 2018. For inventory, it has slightly ticked up over the year, but still are well below pre-pandemic levels.
Why Buyers Could Be Winners Soon
For those who are looking to buy, there is some good news as to why soon might be the best time to start looking again. The first reason is we are exiting the seasonally strongest period of the year. From the middle of April until the end of June is the strongest time of the year for the housing market. Even in normal markets, you could expect supply to rise and pricing to flatten out of the next few months as less people are buying after this season. In general, for those looking around the Memorial Day holiday, there is no reason to rush into your next home. After this holiday, the buyer side of the market typically slows down.
The next reason is that the market is actually softening for the first time since pre-pandemic days. This trend will likely continue as the market tightens because of prices and rates. There are going to be more houses on the market month-after-month for the remaining period of the year. The percentage of homes back-on-market (BOM) or price-reduced has increased in the last 45-days. If the economy experiences the rare “soft landing” the Federal Reserve is looking for, housing may end up being a strong investment again.
The third and final reason is that with the overall economic landscape showing weakness, longer-term interest rates have actually started declining some. This is signaling a slowing economy and a weird dynamic of pricing in rate cuts already. If you recall, the Federal Reserve just hiked rates for the first time in 3 years, and people are already calling for a rate cut. Mortgages fell to a one-month low last week, and could continue to balance out or break down. If the mortgage rate market remains volatile, we may be talking about breaking lower than 5%, instead of hitting 6%.