Mortgage rates are much higher today than they were at the beginning of the year, and that’s had a clear impact on the housing market. As a result, the market is seeing a shift back toward the range of pre-pandemic levels for buyer demand and home sales.

But the transition back toward pre-pandemic levels isn’t a bad thing. In fact, the years leading up to the pandemic were some of the best the housing market has seen. That’s why, as the market undergoes this shift, it’s important to compare today not to the abnormal pandemic years, but to the most recent normal years to show how the current housing market is still strong.

Higher Mortgage Rates Are Moderating the Housing Market 

The ShowingTime Showing Index tracks the traffic of home showings according to agents and brokers. It’s also a good indication of buyer demand over time. Here’s a look at their data going back to 2017 (see graph below):

Here’s a breakdown of the story this data tells:

• The 2017 through early 2020 numbers (shown in gray) give a good baseline of pre-pandemic demand. The steady up and down trends seen in each of these years show typical seasonality in the market.
• The blue on the graph represents the pandemic years. The height of those blue bars indicates home showings skyrocketed during the pandemic.
• The most recent data (shown in green), indicates buyer demand is moderating back toward more pre-pandemic levels.

This shows that buyer demand is coming down from levels seen over the past two years, and the frenzy in real estate is easing because of higher mortgage rates. For you, that means buying your next home should be less challenging than it would’ve been during the pandemic because there is more inventory available.

Higher Mortgage Rates Slow the Once Frenzied Pace of Home Sales

As mortgage rates started to rise this year, other shifts began to occur too. One additional example is the slowing pace of home sales. Using data from the National Association of Realtors (NAR), here’s a look at existing home sales going all the way back to 2017. Much like the previous graph, a similar trend emerges (see graph below):

Again, the data paints a picture of the shift:

• The pre-pandemic years (shown in gray) establish a baseline of the number of existing home sales in more typical years.
• The pandemic years (shown in blue) exceeded the level of sales seen in previous years. That’s largely because low mortgage rates during that time spurred buyer demand and home sales to new heights.
• This year (shown in green), the market is feeling the impact of higher mortgage rates and that’s moderating buyer demand (and by extension home sales). That’s why the expectation for home sales this year is closer to what the market saw in 2018-2019.

Why Is All of This Good News for You?

Both of those factors have opened up a window of opportunity for homeowners looking to move and for buyers looking to purchase a home. As demand moderates and the pace of home sales slows, housing inventory is able to grow – and that gives you more options for your home search.

So don’t let the headlines about the market cooling or moderating scare you. The housing market is still strong; it’s just easing off from the unsustainable frenzy it saw during the height of the pandemic – and that’s a good thing. It opens up new opportunities for you to find a home that meets your needs.

Bottom Line

The housing market is undergoing a shift because of higher mortgage rates, but the market is still strong. If you’ve been looking to buy a home over the last couple of years and it felt impossible to do, now may be your opportunity. Buying a home right now isn’t easy, but there is more opportunity for those who are looking.

If you’re thinking about making a move, you probably want to know what’s going to happen to home prices for the rest of the year. While experts say price growth will moderate due to the shifting market, ongoing appreciation is expected. That means home prices won’t fall. Here’s a look at two key reasons experts forecast continued price growth: supply and demand.

While Growing, Housing Supply Is Still Low

Even though inventory is increasing this year as the market moderates, supply is still low. The graph below helps tell the story of why there still aren’t enough homes on the market today. It uses data from the Census to show the number of single-family homes that were built in this country going all the way back to the 1970s.

The blue bars represent the years leading up to the housing crisis in 2008. As the graph shows, right before the crash, homebuilding increased significantly. That’s because buyer demand was so high due to loose lending standards that enabled more people to qualify for a home loan.

The resulting oversupply of homes for sale led to prices dropping during the crash and some builders leaving the industry or closing their businesses – and that led to a long period of underbuilding of new homes. And even as more new homes are constructed this year and in the years ahead, this isn’t something that can be resolved overnight. It’ll take time to build enough homes to meet the deficit of underbuilding that took place over the past 14 years.

Millennials Will Create Sustained Buyer Demand Moving Forward

The frenzy the market saw during the pandemic is because there was more demand than homes for sale. That drove home prices up as buyers competed with one another for available homes. And while buyer demand has moderated today in response to higher mortgage rates, data tells us demand will continue to be driven by the large generation of millennials aging into their peak homebuying years (see graph below):

Odeta Kushi, Deputy Chief Economist at First American, explains:

 “. . . millennials continue to transition to their prime home-buying age and will remain the driving force in potential homeownership demand in the years ahead.”

That combination of millennial demand and low housing supply continues to put upward pressure on home prices. As Bankrate says:

“After all, supplies of homes for sale remain near record lows. And while a jump in mortgage rates has dampened demand somewhat, demand still outpaces supply, thanks to a combination of little new construction and strong household formation by large numbers of millennials.”

What This Means for Home Prices

If you’re worried home values will fall, rest assured that experts forecast ongoing home price appreciation thanks to the lingering imbalance of supply and demand. That means home prices won’t decline.

Bottom Line

Based on today’s factors driving supply and demand, experts project home price appreciation will continue. It’ll just happen at a more moderate pace as the housing market continues its shift back toward pre-pandemic levels.

Some Highlights

• Experts say the number of homes for sale is growing this year, and that can have a big impact on your move.
• If you’re planning to buy, additional options in today’s market may be just what you’ve been waiting for. More inventory means added opportunities to find the home of your dreams.
• Let’s connect so you have the latest information on available homes in our area.

Over the last two years, the rate of home prices appreciated at a dramatic pace. While that led to incredible equity gains for homeowners, it’s also caused some buyers to wonder if home prices will fall. It’s important to know the housing market isn’t a bubble about to burst, and home price growth is supported by strong market fundamentals.

To understand why price declines are unlikely, it’s important to explore what caused home prices to rise so much recently, and where experts say home prices are headed. Here’s what you need to know.

Home Prices Rose Significantly in Recent Years

The graph below uses the latest data from CoreLogic to illustrate the rise in home prices over the past year and a half. The gray bars represent the dramatic increase in the rate of home price appreciation in 2021. The blue bars show home prices are still rising in 2022, but not as quickly:

You might be asking: why did home prices climb so much last year? It’s because there were more buyers than there were homes for sale. That imbalance put upward pressure on home prices because demand was extremely high, and supply was record low.

Where Experts Say Prices Will Go from Here

While housing inventory is increasing and buyer demand is softening today, there’s still a shortage of homes available for sale. That’s why the market is seeing ongoing price appreciation. Mark Fleming, Chief Economist at First American, explains it like this:

“. . .we’re still well below normal levels of inventory and that’s why even with the pullback in demand, we still see house prices appreciating. While there is more inventory, it’s still not enough.”

As a result, experts are projecting a more moderate rate of home price appreciation this year, which means home prices will continue rising, but at a slower pace. That doesn’t mean prices are going to fall. As Selma Hepp, Deputy Chief Economist at CoreLogic, says:

“The current home price growth rate is unsustainable, and higher mortgage rates coupled with more inventory will lead to slower home price growth but unlikely declines in home prices.”

In other words, even with higher mortgage rates, moderating buyer demand, and more homes for sale, experts say home price appreciation will slow, but prices won’t decline.

If you’re planning to buy a home, that means you shouldn’t wait for home prices to drop to make your purchase. Instead, buying today means you can get ahead of future price increases, and benefit from the rise in prices in the form of home equity.

Bottom Line

Home prices skyrocketed in recent years because there was more demand than supply. As the market shifts, experts aren’t forecasting a drop in prices, just a slowdown in the rate of price growth. To understand what’s happening with home prices in our area, let’s connect today.

While the Federal Reserve is working hard to bring down inflation, the latest data shows the inflation rate is still going up. You no doubt are feeling the pinch on your wallet at the gas pump or the grocery store, but that news may also leave you wondering: should I still buy a home right now?

Greg McBride, Chief Financial Analyst at Bankrate, explains how inflation is affecting the housing market:

“Inflation will have a strong influence on where mortgage rates go in the months ahead. . . . Whenever inflation finally starts to ease, so will mortgage rates — but even then, home prices are still subject to demand and very tight supply.”

No one knows how long it’ll take to bring down inflation, and that means the future trajectory of mortgage rates is also unclear. While that uncertainty isn’t comfortable, here’s why both inflation and mortgage rates are important for you and your homeownership plans.

When you buy a home, the mortgage rate and the price of the home matter. Higher mortgage rates impact how much you’ll pay for your monthly mortgage payment – and that directly affects how much you can comfortably afford. And while there’s no denying it’s more expensive to buy and finance a home this year than it was last year, it doesn’t mean you should pause your search. Here’s why.

Homeownership Is Historically a Great Hedge Against Inflation

In an inflationary economy, prices rise across the board. Historically, homeownership is a great hedge against those rising costs because you can lock in what’s likely your largest monthly payment (your mortgage) for the duration of your loan. That helps stabilize some of your monthly expenses. Not to mention, as home prices continue to appreciate, your home’s value will too. That’s why Mark Cussen, Financial Writer at Investopedia, says: 

“Real estate is one of the time-honored inflation hedges. It’s a tangible asset, and those tend to hold their value when inflation reigns, unlike paper assets. More specifically, as prices rise, so do property values.”

Also, no one is calling for homes to lose value. As Selma Hepp, Deputy Chief Economist at CoreLogic, says:

“The current home price growth rate is unsustainable, and higher mortgage rates coupled with more inventory will lead to slower home price growth but unlikely declines in home prices.”

In a nutshell, your home search doesn’t have to go on hold because of rising inflation or higher mortgage rates. There’s more to consider when it comes to why you want to buy a home. In addition to shielding yourself from the impact of inflation and growing your wealth through ongoing price appreciation, there are other reasons to buy a home right now like addressing your changing needs and so much more.

Bottom Line

Homeownership is one of the best decisions you can make in an inflationary economy. You get the benefit of the added security of owning your home in a time when experts are forecasting prices to continue to rise.