Home prices have continued to surge despite higher mortgage rates and an increase in housing supply—factors that typically put downward pressure on home prices. But the numbers still show the market is quite resilient and costly.
In June, the national median listing price for single-family homes was $450,000, up 16.9% from the same time last year and more than 31% from June 2020, according to Realtor.com. With homes nearing half a million dollars, buyers are beginning to pull out of the market. Mortgage applications dropped to the lowest level at the end of June, marking the biggest slump in 22 years, according to the Mortgage Bankers Association (MBA).
The current change in the housing market is partly due to the economy at large and consumer sentiment. And right now, the economy is on shifting sands—on one hand, there are signs of a weakening economy as the gross domestic product (GDP) has declined for two consecutive quarters, which some economists say indicates a recession. But on the other hand, the job market and consumer spending are still strong.
The MBA hasn’t included a recession in their baseline forecast, but they say it’s a “coin flip at this point,” estimating a roughly 50% chance of the U.S. entering a recession over the next 12 months.
Housing Market Predictions for August 2022
Many housing insiders warn buyers against trying to time the market as the economy wades through this period of uncertainty.
“Deciding to buy now or wait is going to depend on the individual buyer’s motivation and situation. Waiting may not be a viable option,” says Krista Forsberg, a real estate agent at Keller Williams Realty in Edina, Minnesota. “Even if a buyer can push pause on buying to later in a year or 2023, there isn’t likely to be a significant improvement in prices or interest rates.”
Housing experts say they are keeping a watchful eye on the economy, which is being pulled in all directions by inflation, skyrocketing gas prices, and the war in Ukraine, and Covid, to name a few. While housing has been the star of the U.S. economy over the last few years, there are signs of wear—namely, rising interest rates making it harder for buyers to access affordable housing.
“I believe the stark rise in interest rates scares both buyers and sellers; they don’t know if the rates will stay or continue to increase. This lack of predictability causes many buyers and sellers to just sit and wait,” says Steve Simmons, founder of October Real Estate in Los Angeles. “But others will scramble for a sale or purchase before things get worse.”
Existing-home sales dropped 5.4% from May to June, marking the fifth consecutive month of declining sales, according to the National Association of Realtors (NAR). However, the median sales price of these homes reached a record high of $416,000 in June, up 13.4% from a year ago. All of this indicates home prices are not dropping anytime soon.
Will Home Prices Continue to Rise?
Inflation, high mortgage rates, and record-high home prices are chipping away at housing affordability. A typical monthly mortgage payment is 75% higher today than it was in June 2019, according to a report by Zillow. And earnings aren’t keeping up with the inflated costs. Wages grew 6.7% in June, falling behind the 9.1% increase in inflation.
MBA economists also don’t see home prices falling shortly. They reported a median sales price of an existing home at $361,400 in the first quarter, which they expect to go up to $402,000 in the second quarter followed by a slight leveling off at $379,000 in the third quarter.
Housing Inventory Predictions for 2022
Home prices might expand, but the options will, too, according to some economists.
The Realtor.com inventory forecast made a sharp change in course from the beginning of the year to now, going from just a 0.3% rise in inventory to their current prediction of a 15% jump in the for-sale housing stock.
“While housing costs remain high, pushing home shoppers to make tough choices about their budget priorities, the number of homes for sale is expected to continue to grow, building on the turnaround begun in May,” according to the Realtor.com report.
“As more homeowners look to make adjustments to fit changing personal needs and take advantage of favorable market conditions to access the significant amount of equity they have likely accumulated, home shoppers will have more choices.”
Should You Buy a Home Now or Wait?
Buying a house—in any market—is a highly personal decision. Because homes represent the largest single purchase most people will make in their lifetime, it’s crucial to be in a solid financial position before diving in.
Use a mortgage calculator to find out how much your monthly housing costs will be based on your down payment and interest rate.
Trying to time the market or predict what might happen next year is not the best homebuying strategy. Instead, it’s better to buy based on your budget and needs. If you find a home you love in an area you love and it also fits your budget, then chances are it might be right for you. However, if you make too many sacrifices just to get a house, you may end up with buyer’s remorse and an expensive albatross you have to offload.
Tips for Buying in a Hot Housing Market
Start with a budget and make a pact with yourself to stick with it. Even with a slight uptick in the number of homes for sale, buyers are still facing steep prices and mortgage rates in the 6% range.
“There are a lot of factors going into buying right now, and frankly, a lot of people are scared to make a mistake,” says Jennifer Baptista, a real estate agent at Fresh Starts Registry in Andover, Massachusetts. “As a seasoned agent, I ask my clients first and foremost, ‘What does your gut say?’ If the [timing] feels wrong, you will always find the wrong home, so just wait.”
Rachel Luna, the principal of Patriot Title in Houston, also advises buyers to slow down. The scarcity mentality in the market has driven people to make fast decisions, which can quickly turn into buyer’s remorse.
The problem is you can’t return the house if you realize you overpaid or just bought a place you don’t like. The seller’s costs can run up to 10% of the home’s sale price, so you could end up losing money if you turn around and sell it.
“Be patient,” Luna says. “What really matters when purchasing a house is your personal finances and long-term economic stability. Ask yourself: Are you debt-free? Do you have an emergency fund for three to six months of expenses? Will your monthly house payment be 25% or less of your monthly take-home pay? If you don’t comfortably meet these qualifications, it wouldn’t matter if the market is in your favor.”
Tips for Selling in a Hot Housing Market
The first step for a successful sale is to find a listing agent who knows the area and comes highly recommended. A good agent will work closely with you to price your home competitively while fielding questions and offers from prospective buyers.
Meanwhile, present your home in the best possible light. Not everyone has cash dedicated to renovations and repairs, but a little sweat equity can go a long way. The first step is to declutter, organize, and clean.
Tuck away stacks of bills and receipts, store toys and make sure your kitchen is tidy. Bright lighting is also a great way to make your home feel spacious and light.
Even if your home is outdated, a clean space gives buyers a chance to envision the potential of the new home.
By Natalie Campisi and Rachel Witkowski
Source: https://www.forbes.com/
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