Will House Prices Drop in 2022?
Mortgage rates are rising. Home sales are declining. Supply is improving. Here are the latest housing market trends as seen in June 2022. T begin with, the prices are not going to decline in 2022. The various forecasts from experts show that 2022 will remain a sellers' housing market, and home values are expected to increase on a year-over-year basis.
If mortgage rates continue to rise, although, at a slower rate than in recent months, demand will likely decrease in the fall and winter, while home prices will continue to grow, albeit at a slower rate. The real estate market has emerged as a boon for sellers and a source of worry for buyers in the middle of this epidemic. Home prices have been increasing in the mid-single digits for many years.
Recent double-digit price rises reflect the convergence of exceptional demand and chronically low supply. Home prices are increasing as a result of enough money on the sidelines and very low mortgage rates. The improving economy and the approaching peak homebuying years of millennials are driving a residential housing boom. The housing supply is now at its lowest level since the 1970s, due to millennial homeownership and other factors such as rising building prices and real estate speculators snapping up starter homes.
In June 2022, 25 percent of total sales were made in cash, the same share as in May and up from 23% in June 2021. This indicates that one-fourth of purchases were conducted with cash, indicating that there is a sizeable group of buyers who are not impacted by mortgage rate changes. Investors made up 16% of all transactions in June, unchanged from May and a slight increase from 14% in June 2021. This also indicates that higher interest rates will have less of an influence on the housing market than one might expect. Detached single-family houses continue to be in great demand.
These properties provide greater living space and separation from adjacent houses than attached properties provide. Last month there was a surprising uptick in sales of new single-family houses and many experts believed that is likely to be short-lived as home prices continue to rise and the average contract rate for a 30-year fixed-rate mortgage nears 6 percent, decreasing affordability.
The Commerce Department announced that new home sales fell 8.1 percent to a seasonally adjusted rate of 590,000 in June, from a revised 642,000 the previous month. The number of new residences sold has been at its lowest since April 2020, when the coronavirus outbreak was at its peak. Sales have declined after reaching a high of 1.04 million in August 2020.
Mortgage applications have plummeted this year due to fast-rising mortgage rates, which are already at their highest level since the Great Recession. Therefore, sales are predicted to fall further. The Federal Reserve raised rates this year to reduce decades-high inflation, pushing up housing prices by hundreds of dollars each month and crushing demand.
In a warning of possible weakness, the new residential construction decreased by 2% in June, with single-family starts down for the fourth month in a row. Single-family home starts fell 8.1 percent from May's revised estimate to 982,000, while multifamily starts increased 15 percent to 568,000. Single-family starts declined 15.7 percent year on year, while multifamily starts increased 16.4 percent.
The combined rate of construction of single-family houses and structures with five or more units was down 6.3 percent year over year, totaling 1,559,000 units, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. Privately owned housing completions hit an annual rate of 1,365,000 in June, 4.6% lower than May and 4.6% above the previous year.
The seasonally adjusted annual rate for privately owned housing units authorized by building permits was at 1,685,000 in June, down 0.6% from May and up 1.4% from a year earlier. Single-family new house development was down by region across the majority of the United States. It decreased by 25.4 percent, 12.7 percent, and 2.9 percent in the West, Northeast, and South, respectively, while rising by 2.1 percent in the Midwest.
With a near record-low inventory of previously owned homes, some economists believe higher borrowing costs will have a moderate impact on the new housing market. In the long run, an infusion of newly-built homes could benefit the housing market. But there won't likely be a surge in new inventories this year or even next year. Builders cannot develop new homes quickly enough to meet up with customer demand. Over a decade of underbuilding in the new home sector has increased pent-up demand, despite builders' best efforts to increase inventory.
According to the most recent housing market forecast (by realtor.com), home price rise may slow in the future, but it has remained hotter for longer than expected, leading to an upwardly revised prediction of 6.6 percent for 2022. Home sales are slowing, lowering their original 2022 growth forecast to 6.7 percent. While they now predict a significant drop from 2021, if house sales match their forecasts, 2022 sales will be the second-highest since 2007, after only 2021.
The listing price, also known as the asking price, is the amount a seller has marketed a property for, whereas the sale price is the amount it ultimately sells for. In June 2022, the national median listing price for active listings was $450,000, up 16.9% compared to last year, according to Realtor.com.
The largest year-over-year median list price growth occurred in Miami (+40.1%), Orlando (+30.6%), and Nashville (+30.6%). Large western metros saw the greatest increase in the share of price reductions (+14.3 percentage points), followed by southern metros (+7.7 percentage points). Austin reported the highest growth in the share of homes that had their prices reduced compared to last year (+24.7 percentage points), followed by Phoenix (+22.2 percentage points) and Las Vegas (+20.1 percentage points).
According to the National Association of Realtors®, the median existing-home price for all housing types in June 2022 was $416,000, up 13.4% from June 2021 ($366,900), as prices increased in each region. This marks 124 consecutive months of year-over-year increases, the longest-running streak on record. Properties typically remained on the market for 14 days in June, down from 16 days in May and 17 days in June 2021. Eighty-eight percent of homes sold in June 2022 were on the market for less than a month.
Much of the growth was fueled by a 16.8 percent increase in property prices in the South. All other regions experienced home price growth of between 9% and 10.2%. Sales continue to be more robust on the higher end of the market, where the supply is stronger.
- The median existing single-family home price was $423,300 in June, up 13.3% from June 2021.
- The median existing condo price was $354,900, an annual increase of 11.5% over 2021.
- The median price in the Northeast was $453,300, up 10.1% from one year ago.
- The median price in the Midwest was $306,900, an 10.2% climb from June 2021.
- The median price in the South was $374,900, a 16.8% jump from one year prior.
- For the tenth consecutive month, the South experienced the highest pace of price appreciation compared to the other regions.
- The median price in the West was $624,000, up 9.6% from June 2021.
Housing Market Trends 2022: Will Rates Decline?
Mortgage rates fell sharply early in the epidemic, reaching historic lows of less than 3% at the start of 2021. The days of sub-3 percent 30-year fixed mortgage interest rates are over, and rates will surpass 5% in 2022. In response to Bankrate's weekly poll (July 21-27), about 57 percent say rates are going up, around 28.6 percent say rates are going down and approximately 14.4 percent say rates will remain the same.
“Low interest rates were the medicine for economic recovery following the financial crisis, but it was a slow recovery so rates never went up very far,” says Greg McBride, CFA, Bankrate chief financial analyst. “The rebound in the economy, and especially inflation, in the late pandemic stages has been very pronounced, and we now have a backdrop of mortgage rates rising at the fastest pace in decades.”
Housing prices have risen in the first quarter of 2022 despite rising mortgage rates, indicating a mismatch. Mortgage rates will eventually slow down home prices. Economists predicted rates to rise by the end of 2022, but the recent surge in rates has many analysts wondering what would happen next. It happened faster than many predicted, with rates on 30-year fixed loans breaking through 5 percent in April to the highest level in more than a decade.
As mortgage rates rise, competition among those who can afford to buy should continue fierce for the time being. Also, as rates have risen beyond 5%, the refinancing boom of 2020 and 2021 also appears to be finished. According to Black Knight data, rate-and-term refinance activity continued to fall in March, while cash-out refinances remained unchanged.
The economic recovery, particularly inflation, has been very evident in the late epidemic phases, and we now face a backdrop of mortgage rates rising at the quickest rate in decades. More than two-thirds of mortgage experts surveyed by Bankrate believe rates will continue to rise since inflation is not slowing down quickly.
The Fed is likely to raise interest rates several times this year, and its policy has a direct impact on the interest rates on various mortgage products, specifically adjustable-rate mortgages and home equity loans. Fed policy has fewer repercussions for fixed mortgage rates, which track 10-year Treasury yields more closely. Borrowers will see an end to the historically low rates that typified the period following the 2008 and 2009 global financial crises.
As of July 27, 2022, interest rates jumped for all types of loans compared to a week ago. The national average 30-year fixed-mortgage rate is 5.70 percent, down 11 basis points over the last week. A month ago, the average rate on a 30-year fixed mortgage was higher, at 5.91 percent. The average rate for a 15-year fixed mortgage is 4.87 percent, down 11 basis points from a week ago.
- At the current average rate, you’ll pay a combined $576.60 per month in principal and interest for every $100k you borrow.
- That’s a decline of $7.61 compared with last week.
- Monthly payments on a 15-year fixed mortgage at that rate will cost roughly $525 per $100k borrowed.
- Monthly payments on a 5/1 ARM at 4.19 percent would cost about $482 for each $100,000 borrowed over the initial five years
- But with adjustable-rate mortgages, it could ratchet higher by hundreds of dollars afterward, depending on the loan’s terms.
With inflation blazing and the U.S. economy chugging along, the average 30-year mortgage rate rose to 5.70 percent this week, down from 5.81 percent the previous week, according to Bankrate's nationwide poll of large lenders. Although the Federal Reserve doesn’t influence rates on fixed mortgages, its recent move to raise the federal funds rate due to inflation — and the indication it’ll continue to raise that rate this year — does have some impact on mortgages. One of the primary challenges that investors and buyers will need to address this year is rising interest rates.
Today's rates are much higher than they have been in years, which is likely to have a few knock-on consequences in the US housing market – though they are unlikely to produce significant declines in housing prices. While quickly rising mortgage rates may dampen the strong housing demand somewhat, do not anticipate a halt to home price appreciation. A slower rate of appreciation is more likely. The impact of higher mortgage rates is not yet fully reflected in the recent sales data but it has given affordability a big hit.
Keep in mind that, despite recent increases, mortgage interest rates are still within reach when seen in historical context (back in 1981, rates topped 18 percent for a 30-year fixed-rate mortgage). If the house you're eyeing is a good fit for your family and won't put you in financial peril, go ahead and buy it. The longer you delay, the more money you'll have to spend on rising rentals and saving for the down payment you'll need to buy a house. It all depends on your financial status and the housing market in the area where you live.
Rising mortgage rates still have the potential to drive a sizable portion of buyers away from the housing market. This year has already seen a significant increase in housing prices. When combined with interest rate increases, it may become too much for many homebuyers. As a result, the first half of the year is likely to see continued high house prices. When inventory increases and mortgage rates rise, the housing market may soften in the second half of 2022 and in 2023.
Even with rising mortgage rates and higher prices, the housing market would remain a seller's market due to very low supply and increasing demand as more millennials are projected to buy houses in 2022. Now millennials make up the largest share of homebuyers in the US, according to a 2020 survey from the NAR. According to a new study by Realtor.com, buying is more cost-efficient than renting in a growing number of the largest cities in the country.
This is encouraging news for the millions of millennials who are approaching peak homebuying age. Millennials are the largest generation in history, and they are already in their mid-thirties, approaching their prime home-buying years. They were delayed in purchasing a home, but are now back in full force. Thus, we have two, four, or five years of millennial homeownership.
Housing Market Trends 2022: Will Home Sales Decline?
According to the National Association of Realtors, sales of existing homes in June dropped 5.4% to a seasonally adjusted annualized rate of 5.12 million units. Sales were 14.2% lower than in May 2021. Year-over-year, sales fell 14.2% (5.97 million in June 2021. Rising interest rates, along with fast house price increases and persistent limited supply, have delivered a big blow to affordability. NAR does predict a further decline in home sales this year.
At the end of June, there were 1,260,000 million properties for sale, an increase of 9.6% from the previous month and 2.4% from June 2021 (1.23 million). At the current sales rate, this implies a supply of 3.0 months, up from 2.6 months in May and 2.5 months in June 2021. Sales of properties priced between $100,000 and $250,000 plummeted by 31.1%.
The sale of properties valued between $750,000 and $1,000,000 increased by 6.3%. Sales of properties valued at over $1 million increased by 2% annually. Distressed sales – foreclosures and short sales – represented less than 1% of sales in June, essentially unchanged from May 2022 and June 2021.
Single-family home sales declined to a seasonally adjusted annual rate of 4.57 million in June, down 4.8% from 4.80 million in May and down 12.8% from one year ago. Existing condominium and co-op sales were recorded at a seasonally adjusted annual rate of 550,000 units in June, down 9.8% from May and down 24.7% from one year ago.
The South accounted for close to half of all the sales in June, accounting for 44 percent, followed by the Midwest at 24 percent and the West at 19 percent, with the Northeast accounting for only 13 percent. The highest sales were seen in the price segment of $250,000 to $500,000. This price range accounted for 43% of total home sales seen in June. The price segment in the $100,000 to $250,000 range accounted for 19% of total home sales. The price segment in the $500,000 to $750,000 range accounted for 20% of total home sales.
References
- https://www.realtor.com/research/
- https://www.zillow.com/home-values/
- https://www.bankrate.com/mortgages/todays-rates/
- https://www.nar.realtor/research-and-statistics/housing-statistics/
- https://www.nar.realtor/research-and-statistics/housing-statistics/housing-affordability-index
