The US housing market has seen a period of price growth and speed of resales that first-time buyers might be left wondering If they will ever be homeowners. But there are signs that things might be beginning to change.
In this guide, we’ll take a quick look at where the housing market is right now before we then check out the opinions of the industry experts for what we can expect in the future.
The Current Housing Market
In the twelve months from October 2020 through to October 2021, we saw home price growth shatter the previous all-time highs. While the S&P Corelogic Case-Shiller index reported a staggering 19.1% increase, that is down from the all-time high of 19.8% in the twelve-month period starting August 2020.
Now, a .7% decrease may not seem a big deal, but when you take into account that this period includes what was an absolute feeding frenzy in the sale of new homes during spring 2021, then you can start to see how this overall decrease is actually a significant drop.
House Price Increase vs. Salary Increases
What we do have to bear in mind, however, is that the average salary increase was around 3.2%. Now when you compare that to even to the 19.1% increase, it’s not difficult to see the immense challenges that the market is facing
However, home shoppers should not mistake this latest slowdown as price relief. After all, the 19.1% increase in home prices is far above the average 3.2% pay raise workers can expect this year. However, there may be a glimmer of light at the end of the tunnel, and that’s because it’s been predicted that there will be a continued deceleration in price growth throughout 2022.
Whether that really makes a huge difference for the US population remains to be seen. That’s because they will still have to cope with a market where property prices are increasing at a rate that’s more than double to what’s been seen in the last thirty years.
Supply vs. Demand
CNBC has recently reported that 2022 is already seeing an incredible pace in the speed of house sales. Just 62 days was the average period of time that a property was on the market before it sold. And in some parts of the country, such as Nashville, that was right down to 29 days.
Now some of that may have been down to the January winter storms that brought a halt to just about everything. This then resulted in a scarcity of new properties coming onto the market, and with that comes a highly competitive market; great news for property sellers but not so good for those trying to find a new home.
The question now is whether that trend will continue throughout 2022 and beyond. According to Reuters, one of the factors contributing to this shortage comes from investors muscling in on the scene. With their ability to pay cash and without a chain that could prevent the sale from going through, they are an attractive proposition to the vendor.
Unfortunately, for the purchaser, especially first-time buyers, this makes a tough market even more challenging, and there are no signs of this situation changing any time soon.
Another reason for the reduction in available properties comes from the increasing mortgage rates. Right now, many existing mortgage holders gave a rate that’s under the 3% point. However, if they need to re-mortgage to buy a new property, then there are predictions that they are going to be looking at closer to 4%. Having to pay more than you are right now because of interest rate hikes is never an appealing proposition.
Predictions for interest rates for 2022 see quite a range of opinion from a pessimistic 4% through to a more positive 3.4%.
While we all hope that we are past the worst, some financial experts still cite the pandemic as being a critical influence on the housing market. One reason for this is the general feeling of uncertainty. Many families went through tough times after they lost jobs, and that doesn’t make for a house move being on the card any time soon.
Covid also caused a drop in the demand for condominiums as the appeal of high-density living waned. While this market is rebounding, should there be an outbreak of another covid variant, then we might see this trend reappearing.
When we have a situation of precarity, then interest rates tend to go down, in much the way they did when we had the first Covid lockdown. The situation in Ukraine may also impact on mortgage rates though this will depend on how long the conflict continues for.
If you’re wondering why an invasion thousands of miles away is influencing your mortgage rate, well, it’s because during turbulent times, investors tend to shift their attention to safer assets, and this includes mortgage-backed securities. As a result, the mortgage rate goes down.
Prior to the invasion, there was a general consensus that there would be an interest rate growth throughout 2022. Now, however, the Fed may have to implement a change of plan.
As a borrower, that can mean uncertain times when deciding whether to take the plunge, re-mortgage, and move home. And that, in turn, will influence the availability of properties coming on to the market.