POST TAGSMarket Updates
Blog posted On June 28, 2022
Order is being restored in the housing market. Two years ago, mortgage rates sank, and housing activity boomed. Home buyers jumped at low rates and homeowners wasted no time refinancing. Now, activity is cooling off. Some are framing it as a ‘slowdown’ in housing. While this isn’t entirely inaccurate, it doesn’t paint the full picture of what’s going on in the market, nor does it highlight why a ‘cooldown’ is actually needed in the current housing environment.
Housing is Not Doomed for a Crash
First, just because market activity is cooling doesn’t mean we’re headed for a crash. The housing market is in an entirely different place than it was before 2007.
The Market is Normalizing, Not Collapsing
It’s easy to get caught up in headlines that talk about the drastic slowdown in housing. But there’s a lot more to the story than that. Yes, certain aspects of housing activity are trending lower. Construction is one. Housing starts were down 14.4% in May. Home builder confidence dropped two points in June. On a yearly basis, purchase activity and home sales are lower as well. When you see these statistics, they seem negative for housing, but in reality, they reflect a market that’s finally normalizing.
“In 2020 and 2021, housing boomed, and rates plummeted at a pace that many considered to be unsustainable,” writes Matthew Graham, Chief Operating Officer of Mortgage New Daily. “2022's role is to take things back in the other direction.”
The pace at which sales skyrocketed was never going to be sustainable long-term. Especially with the supply of homes at such a low level. “Regarding the monthly supply for housing, we want this to get above four months as soon as possible,” explains HousingWire Lead Analyst Logan Mohtashami. “This would be a more traditional level for the housing market; we are making some progress here but not where we want to be yet.” Right now, the unsold inventory of existing homes is at a 2.6-month supply at the current sales pace, up from 2.2 months in April and 2.5 months in May 2021. Good improvement, thanks to higher mortgage rates and cooled demand. But home inventory still has a way to go. Construction is likely slowing in anticipation of more existing homes for sale entering the market in coming months.
It’s a Great Time to Buy
One factor holding buyers back is rates. As we’ve said before, the record-low mortgage rates during the pandemic will more than likely never return. The rapid rise in mortgage rates during the beginning of 2022 is likely intimidating. When compared to historic mortgage rates, the current levels are not all that high. In fact, mortgage rates have actually been trending lower over the past two weeks.
Another factor that may seem daunting to buyers is home prices. According to the Case-Shiller home price index, home prices are up 21.2% compared to last year. Combined with higher mortgage rates, buyers might be seeing some ‘sticker shock.’ However, on a monthly basis, home price appreciation is cooling – down from 2.4% to 1.8% in April. Additionally, home buyer competition is lower, reducing the number of bidding wars, and lowering the price at which offers are made. "Offers also aren’t coming in as high above the list price as before,” said Jennifer Bowers, a Redfin real estate agent in Nashville. More homes are on the market as well, which will continue to help reduce the price of homes. It is also giving buyers more options and leverage than they had just months ago.
Don’t let the headlines scare you out of the market. If you’re interested in buying but concerned about prices or rates, let us know. We have several options that may help reduce the amount of interest you pay.
Source: CNBC, CNBC, CNBC, HousingWire, MarketWatch, Mortgage News Daily, Reuters, Yahoo!