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Housing Market Crash 2022: Will Real Estate Market CRASH?

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HOUSING MARKET CRASH 2022?

As more signs show that the housing market is already slowing down in 2022, many people are wondering: Will the housing market crash or collapse in the near future? The housing market is cooling as the economy is shrinking. The stock market is falling as inflation soars. Google trends include “Is the U.S. in a recession?”

If the country isn't in a recession, it may be close. Will another downturn crash the housing market? As of August 2022, amid record inflation and higher interest rates, the forecasters still think that home price growth in 2022 will see a strong deceleration but the price would still not decline year-over-year.

Housing caused the worst financial crisis in recent memory. When shoddy mortgages crumbled, the nation was left with foreclosures, numerous new houses remained empty, and millions of Americans were suddenly underwater. Throughout the preceding century, the housing market met considerable barriers, but none, with the exception of the Great Depression of 1929, led to the decrease in home values that happened during the Great Recession of 2007.

It is also important to note that not all economic downturns dampen the real estate market. Despite the economic downturn, the home market and demand remained robust during the 2001 recession. The housing market has been subjected to a number of severe hurdles during the course of the previous century; but, with the exception of 1929's Great Depression, none of these challenges have resulted in a decrease in house values comparable to that of 2007's Great Recession.

In 2022, most Americans don't want another 18 months of hardship. The housing market's recent pandemic boom, with skyrocketing prices, bidding wars, and an influx of investors, has parallels to that previous time. However, this time, the housing market won't crash or trigger a recession and may even assist the country's recovery. The majority of real estate professionals do not believe that the housing market of 2022 is in a bubble or poses a threat to the faltering economy.

This is despite the fact that home prices have risen by more than 31 percent nationally in only two years. The median list price figures on Realtor.com® are from June 2020 to June 2022. This time around, there are far more purchasers than available properties, the exact opposite of what occurred in the 2000s. The majority of bad mortgages have been eliminated. Lenders have significantly stricter requirements on borrowers.

However, this does not mean the economy is immune to the recession. Two consecutive quarters of negative U.S. gross domestic product, or GDP, often indicate an economic collapse. According to the U.S. Commerce Department, GDP decreased by 0.9% in the second quarter of the year, following a decline of 1.6% in the first quarter.

The unemployment rate remained extremely low in June, at only 3.6%. Despite the fact that more corporations are implementing hiring freezes and laying off staff, there are still a large number of organizations competing for personnel. If the country were in a recession, many more people would undoubtedly be unemployed, and companies would not be complaining about a lack of qualified applicants.

U.S. Federal Reserve Chair Jerome Powell has said the nation isn’t in a recession, a sentiment echoed by President Joe Biden.

“I do not think the U.S. is currently in a recession, and the reason is there are too many areas of the economy that are performing too well,” Powell said at a press conference on Wednesday.

According to Realtor.com, the housing shortage is simply too severe, with many more individuals trying to purchase and rent houses than there are available. In addition, the mortgage sector took action against loans that ballooned in size or were intended for borrowers to fail. And only purchasers with a consistent, verifiable income may qualify for mortgages.

The housing market was very different during the Great Recession In 2005 and 2006, 20% of mortgages went to persons who didn't meet regular lending conditions. They were called Subprime borrowers. Subprime lending has a higher risk, given the lower credit rating of borrowers. 75% of subprime loans were adjustable-rate mortgages with low initial rates and a scheduled reset after two to three years. Government promotion of homeownership prompted banks to slash rates and credit criteria, sparking a house-buying frenzy that drove the median home price up 55% from 2000 to 2007.

Nowadays, things are very different. Even if a recession occurs in 2022 or 2023, experts do not anticipate the widespread unemployment that characterized the Great Recession. They also anticipate that the recession will be quite brief. This means that there will be fewer homeowners unable to pay their mortgages. Those who are struggling may decide to sell their houses, maybe even at a profit, rather than allow them to be lost to foreclosures and short sales.

Without a lot of cheap homes flooding the housing market, home prices should remain strong to prevent any crash coming. 

Many tapped-out homeowners are taking a step back as mortgage interest rates progressively rise into the 5%-plus range or close to 6%. Some no longer qualify for mortgages big enough to finance the purchase of the type of home they desire. Others cannot afford the increased rates and prices or do not wish to purchase at the housing market's peak. Some individuals are taking a wait-and-see strategy out of fear of a recession.

As a result, fewer properties are selling, bidding wars are subsiding, and bids beyond the asking price are decreasing. Numerous house sellers have been compelled to reduce their asking prices. In the event of a recession, mortgage rates are anticipated to decline. This should reintroduce buyers (who did not lose jobs) to the housing market. When home sales will increase, the economy as a whole will benefit. This is how the housing market can assist the nation in climbing out of a recession.

The National Bureau of Economic Research’s Business Cycle Dating Committee, and the eight economists who sit on it, are the official arbiter of whether the economy has entered into a recession. It has yet to make a determination.

“We’ll wait and see,” says Hale. Whatever happens, “I don’t expect another housing crash.” “In today’s housing market, we have a decade’s worth of underbuilding, which means there’s a lot more demand than supply,” says Hale. That imbalance should keep home prices stable. “It’s unlikely we will see big home price declines as we saw in the late 2000s.”

Millennial Housing Demand Will Keep The Market From Crashing

Millennials and Gen Z want more housing. As of July 2019, 166 million Americans aged Millennial or younger are potential homebuyers. According to the National Association of Realtors, first-time buyers were responsible for 30% of sales in June, up from 27% in May and down from 31% in June 2021. Most first-time buyers are younger than 40, indicating a broad buyer pool and robust demand, especially given low home inventories.

We won't see a decline since home inventory hasn't grown in 10 years. In a few years, Gen Z will be 30 and more financially competent to become homes than Millenials were at their age. This suggests house demand will remain strong, if not rise, while inventory lags. The extremely low supply is driving up home prices, which is another reason why housing experts believe the market will remain strong for years to come.

The fundamental reason house prices have risen so fast in the past two years of the pandemic is a supply-demand imbalance, And, after not building nearly enough houses over the previous decade, it will take at least many years for homebuilders to add enough new supply to balance the market.

The months of supply in a balanced market would be roughly six months—the time it would take to exhaust all homes for sale at the current sales rate. However, the current market has only 3.0 months of supply (up from 2.5 months in June 2021), indicating a significant imbalance in favor of sellers. The slowdown in housing construction continued into June as housing starts fell to their lowest level since September 2021. Housing starts fell by 32k units in June to 1,559,000 (annualized).

With building permits falling for the third month in a row, evidence point to continued weakness in house development, particularly in the single-family category. As mortgage rates remain at levels last seen at the onset of the Global Financial Crisis, it is anticipated that demand will continue to decline throughout the year but there are no signs of a housing market crashing again this year or in 2023.

Pandemic-induced housing boom will slow down somewhat. The slowing economy, combined with inflation and interest rates eroding consumer purchasing power, presents large challenges for the housing market through the rest of the year. That said, a strong labor market remains supportive of demand, and improving supply conditions should help keep the construction market from rapidly deteriorating.

Today's buyers are facing challenges in the form of high prices and mortgage rates. House prices are continuing to grow and new home constrictions lag behind, leaving them in constrained housing conditions. Some buyers move from large cities to cheaper metros. Buying a house today during inflation, even if it means postponing other expenditures, might save money if prices and equity grow. Buyers may save by buying a property and locking in a rate before rates and prices rise further.

The economy affects housing supply and demand. If the economy is strong, more people will purchase and sell real estate. If the economy isn't functioning well, consumers have less income due to inflation. Their wages and weekly income aren't rising as fast. Supply and demand affect home values. Even if inflation is high, housing prices will decline due to oversupply.

For example, between 2006 and 2007, failure to make mortgage payments resulted in the foreclosure of millions of homeowners, resulting in a steep decline in house values, an increase in financial troubles, and, eventually, the bursting of the housing bubble. The ability to predict when the housing market would implode depends on a number of things. After all, is said and done, you must consider the following questions. Are homes still being sold in your neighborhood? Do prices fluctuate frequently?  Are there numerous home foreclosures?

Buyers and investors in the housing market must be able to see through real estate agent hype and bluff. Answering these questions can help you understand how your local housing market is performing, but there is no specific formula for determining whether a housing crisis is near. If you are unsure of what you are witnessing in your particular market, an experienced local realtor will help put your queries in context.

When Will the Housing Market Crash?

Will the Housing Market Crash

The current state of the real estate housing market, which is currently adjusting to record-high inflation and higher interest rates, is giving real estate companies and experts a run for their money, as the continued pressure of these forces is causing difficulties for those who make future predictions.

What are the housing market crash predictions for the next five years? Prior to answering this question, it is crucial to comprehend what causes real estate markets to fall in the first place. First, it is essential to recognize that housing markets do not suddenly crash. Multiple variables will exert pressure on a market over time, eventually leading to its collapse. When home values climb too rapidly, a housing bubble arises. When there's demand and the capacity to buy, it may increase. When there aren't enough houses for sale to match demand, competition drives up prices.

When a housing bubble expands and pressure builds, the housing market may crash. Interest rate hikes slow the economy. Demand and jobs might drop. Oversupply promotes a buyer's market and cheaper pricing. The real estate market might then fall or stall down. How can you know how awful and how fast it will go better? It depends on how sustainable development was before the slowdown and how serious the causes are.

Despite the fact that home prices continue to set records, a panel of housing specialists and economists polled by Zillow believes the market is not in a bubble. The most recent Zillow Home Price Expectations study interviewed more than 100 experts from academia, government, and the private sector about the status of the housing market and future growth, inflation estimates, and recession risks. Sixty percent of those polled do not believe the US housing market is now in a bubble, compared to 32 percent who say it is and 8 percent who are unsure.

 

will the housing market crash
Source: Zillow

Strong market fundamentals, including demographics, restricted inventory, and altering housing tastes, led respondents to reject the housing bubble argument. Sound loan underwriting and the majority of fixed-rate, fully amortized mortgages led to low credit risks. Another substantial minority opposed the word “bubble,” which suggests an imminent crash. Unaffordable prices in the absence of record-low mortgage rates are the main concern of housing bubble believers.

A hot market doesn't always indicate a bubble. Although a recession is imminent, today's housing market is very different from the mid-2000s. This market is supported by robust fundamentals and sound mortgages, aspects that won't alter soon. Therefore, most of the housing crash predictions show us that prices aren’t likely to drop in the near future.

Despite a more than 100-basis point increase in mortgage rates since the previous survey just three months ago and the potential for higher rates in coming months, the panel’s expectations for 2022 home price appreciation still rose to 9.3% from 9.0% last quarter. This would be a significant step down from the 19.6% appreciation observed over the 2021 calendar year, but still high above long-term historical averages.

Looking forward, the most optimistic quartile of respondents predicted prices would rise 46.1% between now and the end of 2026, while the most conservative quartile predicted a cumulative rise of only 9.3% in that time. On average, respondents are forecasting a 26.4% cumulative rise by the end of 2026.

The next 5 years will also see huge technological changes in the real estate sector, which could impact the demand and supply. The housing market is coming off a year in which home prices in the United States increased by an unsustainable 18.8%. Will the market continue to grow at this rate or will it be a little less frenetic this year?

An already challenging market with limited inventory and record price growth has become even more unfavorable for homebuyers as a result of an unprecedented interest rate increase. Even industry titans like Zillow decreased their bullishness in August, decreasing their projected home price growth rate for the next twelve months.

Zillow’s home value forecast expects a significant slowdown in annual home value growth – as measured by the raw Zillow Home Value Index from the current rate of 16% to 2.4% for the twelve months ending July 2023. This is a significant update from last month’s forecast of 6.9% appreciation through June 2023.

The national median home value declined 0.1% in July from June, the first monthly decline since 2012, and monthly growth has slowed since April's 1.9% high. In addition, Zillow's home value forecast now includes the percentage of for-sale listings that receive a price reduction. In recent months, this proportion has increased significantly as home sellers adjust their strategies in response to fluctuating market conditions. A weaker outlook for home sales is also a significant contributor to the reduced outlook for home value appreciation.

The forecast for 5,3 million existing home sales in 2022, which would represent a 14.1% decrease from 2021, also reflects recent market changes and continued weakness in the metric's leading indicators. In June, sales dropped more quickly than anticipated, and in July, pending home sales and mortgage applications were weaker than anticipated.

One of the most widely held housing market predictions for 2022 & 2023 is that inventory will remain scarce but price appreciation will be slower than it was in the last two years. While spring and summer will likely see an increase in listings, it is unlikely that there will be enough to meet demand. The housing market has been particularly robust in the pandemic, with high demand for homes in almost every region of the nation.

The cost of borrowing money through mortgages has been steadily increasing this year. Most experts predicted that mortgage rates would climb this year, but they did so more quickly than expected, averaging more than 4% for 30-year fixed-rate mortgages in mid-February. Around mid-April, it surged to 5.28 percent, the highest level since April 2010, and the uptick continues.

Monthly affordability will suffer as interest rates rise, but we'll also lose more of the investment-type buyers looking for once-in-a-lifetime leverage. As a result, rising interest rates may also imply a more stable market. With rates that low in 2021, all kinds of buyers rushed in, and with little housing supply to match, price rise has been ferocious.

This also emphasizes affordability. The basics of housing needs would still continue to drive primary purchases forward. It's a good thing that the housing market will be less heated in 2022 and 2023. Let's take a closer look at why the housing market is showing some signs of a slowdown in 2022 & beyond.

Fannie Mae's housing market forecast released in July 2022 is also less bullish due to “softening consumer spending.” As the year proceeds, the cumulative impacts of greater inflation and higher interest rates are anticipated to weigh more on economic growth and house sales. Significantly higher mortgage rates are now the key restriction on the housing market.

The ESR Group anticipates revised down its forecast for total home sales growth in 2022 to a decline of 15.6%, compared to a decline of 13.5% predicted the previous month. However, it adjusted upwards its home price appreciation forecast to 16% year-over-year in 2020 from the previously projected 10.8%. 

The group stated that it “continues to anticipate strong deceleration in home price growth going forward due to the lagged effects of higher mortgage rates and the slowing economy weighing on purchase demand.”

With inflation running well above the target rate, the market's expectation of further, substantial monetary tightening has pushed interest rates even higher, and interest rate-sensitive industries, such as the housing market, are slowing in response. The prospective monthly payment on a typical new mortgage is climbing dramatically due to which both new and existing home sales, as well as construction, continue to remain sluggish.

The FMHPI is an indicator for typical house price inflation in the United States. It shows that home prices increased by 11.3 percent in 2020 and 15.9 percent in 2021, as a result of robust housing demand and record low mortgage rates. According to Freddie Mac's quarterly housing forecast released in July 2022, the total home sales are down 17% since the beginning of the year.

They expect housing demand to moderate and forecast home sales to slow to 6 million in 2022 and 5.4 million in 2023. They also forecast 30-year fixed rates to average 5% in 2022 and rise to 5.1% in 2023. House price appreciation is slowing to a more moderate growth rate and it is expected that price growth will be 12.8% and 4.0% in 2022 and 2023 respectively.

Freddie Mac anticipates home purchase mortgage originations to reach $2.0 trillion in 2022, followed by a decline to $1.9 trillion in 2023 as a result of house price growth and home sales forecasts. They predict that refinance originations will decline from $2.8 trillion in 2021 to $885 billion in 2022 and $450 billion in 2023 as a result of rising mortgage interest rates. From a peak of $4.8 trillion in 2021, they expect total originations to decline to $2.8 trillion in 2022 and $2.3 trillion in 2023.

Real Estate Housing Market Crash
Source: Freddie Mac

Mark Zandi, the chief economist of Moody's Analytics, said he is concerned about a harsh landing in the housing market, but he believes the market and economy will not collapse as they did last time. He believes that for the 2023 housing market, home prices will level off, decreasing in certain sections of the country while rising somewhat in others. In comparison to the rise in 2022, this prediction for 2023 appears fairly reasonable.

CoreLogic HPI national change seen in June showed that prices nationwide, including distressed sales, increased year over year by 18.3% in June 2022 compared with June 2021. It marked the 125th consecutive month of year-over-year increases. On a month-over-month basis, home prices increased by 0.6% in June 2022 compared with May 2022.

The CoreLogic HPI Forecast shows that home prices will increase on a month-over-month basis by 0.6% from June 2022 to July 2022 and on a year-over-year basis by 4.3% from June 2022 to June 2023, bringing home price growth close to the long run average from 2010 to 2020.

Will The Housing Market Crash?
Source: CoreLogic [U.S. Home Price Insights – August 2022]
As intended, a slowing home price increase indicates the damping effect of rising mortgage rates and worries about a slowing economy on housing demand. As a result of a roughly 50 percent increase in monthly mortgage costs over the past several months, there are now fewer purchasers competing for a consistently constrained inventory. And despite the fact that the yearly home price increase currently surpasses 15 percent, CoreLogic anticipates a dramatic decline in the next year.

They are predicting positive, but moderating year-over-year percent changes, and forecasting gains for the next year. The normalization of overheated purchasing circumstances should lead to a greater equilibrium between buyers and sellers and a stronger housing market overall.

No states posted an annual decline in home prices. The states with the highest increases year over year were Florida (31.8%), Tennessee (25.8%), and Arizona (24.9%). These large cities continued to experience price increases in June, with Phoenix on top at 26.1% year over year.

housing market crash forecast
Source: CoreLogic

Top Markets at Risk of Home Price Crash

The CoreLogic Market Risk Indicator (MRI), a monthly update of the overall health of housing markets across the country, predicts that Bremerton-Silverdale, WA is at very high risk (70%-plus probability) of a decline in home prices over the next 12 months. Bellingham, WA; Boise City, ID; Crestview-Fort Walton Beach-Destin, FL and Olympia-Tumwater, WA are also at very high risk for price declines.

Top Markets at Risk of Home Price Decline
Source: CoreLogic

Sources:

  • https://www.realtor.com/news/trends/recession-will-housing-market-survive/
  • https://www.noradarealestate.com/blog/housing-market-predictions/
  • https://www.corelogic.com/intelligence/u-s-home-price-insights/
  • https://www.forbes.com/advisor/mortgages/real-estate/will-housing-market-crash/
  • https://www.zillow.com/research/zhpe-q2-2022-not-a-bubble-31093/
  • https://www.freddiemac.com/research/forecast
  • http://www.freddiemac.com/research/forecast/20210715_quarterly_economic_forecast.page
  • https://www.fhfa.gov/DataTools/Downloads/Pages/House-Price-Index.aspx
  • https://www.zillow.com/research/zillow-home-value-and-sales-forecast-august-2022-31346/

Housing Market Predictions 2022: Real Estate Forecast

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Home prices have continued to rise despite rising mortgage rates and housing supply. The figures reflect a robust, expensive housing market. In this blog, we provide housing market predictions for 2022 and 2023. Additionally, we'll provide an answer to a perennial favorite of prospective homebuyers and investors: Will the housing market crash in 2022?

This year's dramatic and rapid jump in mortgage rates made an already expensive housing market much less affordable. Home prices surged dramatically during the first years of the Covid epidemic because demand was extremely high, supply was historically low, and mortgage rates reached a slew of new lows.

Also Read: Existing home sales declined, and prices also softened substantially in August 2022 

The current housing market trends show that it is expected to continue its upward trend in the next couple of years. Buyers remain interested, keeping the market competitive, especially for attractive, well-priced homes. But some factors could affect the pace of the market or whether it favors buyers or sellers. Despite the clear signs of a slowing housing market, it remains somewhat competitive for homebuyers, with new records set for home-selling speeds and price increases.

Higher mortgage costs and fears of a recession have cooled housing markets from their early spring highs. Most of the weakening demand appears in expensive West Coast markets that have seen price growth in the last two years. More affordable, warmer regions remain on buyers' radars. Buyers still face plenty of competition, especially for attractive properties, with multiple offers and final sales prices higher than asking prices.

The market is moving away from sellers, but the balance is far off. Pressure on home price growth will persist through the end of the year and housing prices will continue to rise due to a mismatch between supply and demand. Many experts predicted that the pandemic would cause a housing crash on par with the Great Depression. That, however, is not going to happen. The housing prices are unlikely to drop even in the second half of 2022 but they are forecasted to rise more slowly than last year.

The housing market of 2022 is in far better shape today than it was a decade ago. The housing industry has had a boom last year, with the most significant annual gain in single-family house values and rentals, historically low foreclosure rates, and the highest number of home sales in 15 years, reaching 6.9 million for the entire year. The national home prices have increased 33 percent over the previous two years.

The market was driven by record-low borrowing rates in 2020 and 2021 and a constrained supply due to underbuilding. The tremendous demand from first-time homeowners is almost as crucial as the restricted new supply. The exceptionally favorable age demographic trends are also the driving force behind the current housing market.

Housing Market Predictions For 2022

The latest from Zillow is that it predicts that the final months of 2022 will not bring about significant increases in home values, even though it forecasts that home values will increase in the majority of markets between August 2022 and August 2023. Zillow forecasts that home values will decrease in 552 different regional markets over the course of the next three months.

As a result of rising mortgage rates, the value of homes in around two-thirds of the nation's main housing markets declined throughout this past summer. At this very moment, the economic jolt caused by rising mortgage rates is continuing to eat away at some of the gains that were earned in the spring of 2022.

Goldman Sachs analysts published a study titled “The Housing Downturn: Further to Fall” on August 30. The investment bank now predicts that activity in the US housing market will be down by the end of 2022. This year, the business predicts steep reductions in new home sales (22%), existing home sales (17%), and housing GDP (8.9%). Goldman Sachs projects further declines in 2023 in new home sales (another 8% drop), existing home sales (another 14% drop), and housing GDP (another 9.2% drop).

According to Black Knight, a mortgage software, data, and analytics firm, home prices fell 0.77% from June to July, the first monthly drop in nearly three years. While the decrease may appear minor, it is the largest single-month drop in costs since January 2011. It is also the second-worst July result since 1991, trailing only the 0.9% drop in July 2010, during the Great Recession.

Home prices were still 14.3% higher in July compared to July 2021, which is more than three times the typical annual price growth rate, but the majority of that rise occurred during the first five months of 2022, before the huge spike in mortgage interest rates. Even if employment remains high, housing sales volumes are anticipated to dip in the second half of 2022 and throughout 2023.

Historical data suggests that sales could fall by 15% or more. The high level of employment and the rising ratio of cash buyers (30%) or those using ARMs will help to minimize what might otherwise be a temporary halt in the real estate market.

Low inventories will prevent home prices from flattening or declining. Strong job growth, low inventories, and tight supply will cause unequal price movements. Lower price tiers are more susceptible to interest rate hikes, while higher price tiers are more resistant to price decreases. The mix of homes that sell may be smaller on average as the market reacts to increasing mortgage rates and decreased affordability.

According to Freddie Mac, there are currently 18 percent more persons aged 25 to 34 than there were in 2006. This represents an increase of 6.6 million prospective first-time homeowners, from 39.5 million in 2006 to 46.1 million today. In addition to the increase in first-time homebuyers, the number of high-income renters who can afford to buy and are of prime first-time homebuyer age has also been growing.

In 2006, lending criteria were significantly loosened, and little examination was done to determine whether or not a borrower could repay their loan. These days, the requirements are more stringent, which lowers the risk for both the lenders and the borrowers. Consistent with a more challenging housing market for buyers, the share of buyers that faced at least one mortgage denial before getting approved grew from 22% in 2020 to 34% in 2021.

The government and jumbo segments had the most significant tightening in the previous month. These two housing markets couldn't be more different from one another, and the current situation is in no way comparable to that of the past. The Mortgage Credit Availability Index (MCAI) is an index that is released regularly throughout the year by the Mortgage Bankers Association (MBA). This index is used to measure how simple it is to get a mortgage.

The higher the index is, the more options there are for obtaining mortgage finance. In 2004, the index was hovering around the 400 mark. As the housing market heated up, mortgage loans became more available, and then in 2006, the index surpassed 850. The mortgage credit availability index (MCAI) fell as a result of the fall in the real estate market since it became nearly hard to get mortgage financing.

Since then, thankfully, the conditions for lending have been relaxed a little bit, although the index is still rather low. The index had a reading of 120.0 in May, which is around one-seventh of what it had been in 2006. It remains more than 30 percent below pre-pandemic levels. Because there aren't as many options on the housing market, a lot of people in the United States are having a hard time finding the house of their dreams.

Communities all around the country are struggling because of low inventories. Over the past decade, chronic underbuilding and the influx of millions of millennials into the homebuying market have resulted in a major mismatch in housing supply and demand. Even though mortgage rates are skyrocketing, the housing market is not going to crash any time soon.

The result will be a much slower rate of appreciation than in the past two years. We are predicting the housing market for the next 5 years and to recognize patterns that may influence real estate values and rentals beyond a year.

CoreLogic HPI™ is designed to provide an early indication of home price trends. Home price growth slowed for the second consecutive month, indicating a broader housing market slowdown. Home prices increased by 18.3% from June 2021 to June 2022, marking the 125th consecutive month of year-over-year growth. Though annual growth remained strong, it slowed from the previous month for the second consecutive month, reflecting lower buyer demand caused in part by higher mortgage rates and concerns about a slowing economy.

On a month-over-month basis, home prices increased by 0.6% in June 2022 compared with May 2022. The CoreLogic HPI Forecast indicates that home prices will increase on a month-over-month basis by 0.6% from June 2022 to July 2022 and on a year-over-year basis by 4.3% from June 2022 to June 2023.

Nationally, home prices increased 18.3% year over year in June 2022. No states posted an annual decline in home prices. The states with the highest increases year over year were Florida (31.8%), Tennessee (25.8%), and Arizona (24.9%). Large cities continued to experience price increases in June, with Phoenix on top at 26.1% followed by Las Vegas at 24.3% year over year.

The US CoreLogic S&P Case-Shiller Index posted a 19.7% increase, down from a 20.6% gain in April, confirming a tipping point after strong reacceleration in home price growth in the early months of 2022. A further indication of slowing price growth is seen in the deceleration of the non-seasonally adjusted month-to-month index, which slowed to 1.5% in May from a 2.6% increase in March and a 2.3% gain in April.

May’s increase was the second strongest in the data series following a 2.3% gain last May. Between 2015 and 2020, the monthly index changes from April to May averaged about 0.9%. Higher mortgage rates and recession fears are hurting buyer demand, but overall sales activity through May was steady compared to 2021.

June appeared to be a turning point, with a significant drop in buyer interest. Next month's data will reflect this. Highly unaffordable markets and those that led with price acceleration over the last two years, such as California's coastal markets and Phoenix, are hallmarks of a slowdown, according to the CoreLogic S&P Case-Shiller Index.

Even though the housing market is cooling, it's not balanced. After two record years, the housing market remains difficult for buyers, who face competition and pay premiums for attractive properties. The 10- and 20-city composite indexes also showed signs of losing speed, up by 19% and 20.5% year over year, respectively, compared with 19.6% and 21.2% in April. The overall tendency for more price increases in smaller markets continues to drive the 20-city index growth higher, as buyers flock to smaller and more affordable areas, particularly those in the Southeast and Florida.

Freddie Mac's own regression research indicates that a 1 percent rise in mortgage rates reduces home price increases by around four percentage points (for example, moving from 11 percent home price growth a year to 7 percent ). In contrast, analysts at J.P. Morgan expect a greater impact of around six percentage points lower home price increase.

Since home values are so high, the housing market may be more susceptible to rate increases than in the past; therefore, the greater estimate appears realistic. While it seems apparent that rising interest rates will reduce housing demand by reducing affordability, the actual past is a significantly less reliable indicator of what will occur because of a huge balancing impact – interest rates often rise when the economy is expanding.

The government-sponsored enterprise forecasts that for every one percentage point increase in mortgage rates, house sales would decrease by around five percent, and price growth will slow by four to six percentage points. If mortgage rates stabilize at current levels, and all other factors remain constant, their analysis predicts a much slower, but still positive house price rise with a wide regional range depending on migration trends.

As work-from-home becomes increasingly popular, it is anticipated that the housing market will continue to be undersupplied and that migration to lower-cost areas will continue to rise. This is significant since most booming cities have a major housing shortage due to a previous inflow of population.

Finally, favorable demographics suggest that the robust demand for first-time homebuyers will persist. This is due to the fact that there are still a substantial number of younger renters with sufficient income to sustain homeownership, and they should continue to be a formidable force for the foreseeable future. As the economy faces various headwinds in the next months and years, these variables should continue to exert a substantial influence on the housing market.

The quarterly housing outlook pulse poll conducted by Freddie Mac assesses public attitudes on housing-related problems. Since the beginning of the epidemic, market confidence has reached its lowest point in the second quarter of 2022. In addition, as a result of the impact of growing inflation on the cost of living, they found an increase in housing payment difficulties, particularly among renters.

  • 51% are confident the housing market will remain strong over the next year.
  • This is down 7 percentage points from last quarter.
  • 56% of renters and 24% of homeowners spend more than 30% of their monthly income on housing.
  • 51% are concerned about making housing payments, up 4 percentage points from last quarter.
  • This is true for 68% of renters (a 10-percentage point increase from last quarter) and 38% of homeowners (a 3-percentage point decrease from last quarter).
  • 24% are likely to buy a house in six months.
  • 17% of homeowners are likely to sell in the next six months.
  • 23% of homeowners are likely to refinance in the next six months.
Housing Market Outlook
Source: Freddie Mac

Housing Market Forecast for the Second Half of 2022

The new housing market forecast for 2022 by Realtor.com® has been released as a mid-year update. After more than a year of skyrocketing demand, and skyrocketing home prices, the housing market appears to be cooling off. The housing market is not collapsing, but it is heading towards more balanced conditions from an unsustainable peak of last year.

Housing Market Predictions 2022

This year, mortgage rates have risen by more than two and a half percentage points. Furthermore, the increasing expenses of purchasing a home have altered many prospective purchasers' calculations. As a result, year-over-year house sales have fallen in recent months. A record 79 percent of respondents in a Fannie Mae study on homebuyer sentiment indicated it's a poor time to buy a home.

Home sales activity kicked out 2022 stronger than anticipated, but rising costs have led to alter their forecast downward. Realtor.com now forecasts a 6.7% decline in house sales in 2022. They anticipate the greatest year-over-year decline in house sales at the customary peak of the summer selling season. Home sales on par with these predictions would mean that 2022 sales are the 2nd highest tally since 2007, trailing only 2021.

In the second half of 2022, house price growth will moderate, although it has been hotter for longer than anticipated, resulting in an upwardly revised forecast of a 6.6% home price rise for 2022. That's an increase from their previous forecast of 2.2% growth in home prices. More than a decade of chronic underbuilding, coupled with millions of millennials entering the homebuying stage of life, has resulted in a major mismatch in housing supply and demand in the United States.

  • The median sales price appreciation prediction for existing homes has increased from 2.9% to 6.6% for 2022.
  • The prediction for existing home sales has shifted from positive growth of 6.6% to an annual fall of 6.7%.
  • Mortgage rates have been revised upward to reflect the major shift in monetary policy and financial conditions over the last 6 months.
  • In the second half of 2022, housing finance rates are predicted to climb at a more modest pace, which means that rates may hit 5.5% by year-end.
  • As mortgage rates have increased, prospective homeowners have submitted fewer loan applications.
  • According to the Mortgage Bankers Association, mortgage purchase applications decreased by 16 percent (in the week ending June 10) compared to the same week last year.
  • With mortgage rates, well above 5 percent, refinancing activity, which was brisk during the epidemic when rates were at an all-time low, has dwindled by more than 70 percent compared to last year.

Therefore, don't forecast a halt in the home price rise even though mortgage rates are rising significantly. While housing costs remain high, forcing homebuyers to make difficult decisions, it is predicted that the number of properties for sale will continue to increase, building on the reversal that began in May 2022. That is a sign of relief for first-time home buyers.

Increasing housing inventory is excellent news for buyers. Homebuyers will have additional options as a greater number of homeowners want to adapt their living situations to changing personal demands and take advantage of favorable market circumstances to access the substantial wealth they have accrued.

Homeowners continue to be in a favorable position, particularly those who have owned for extended periods of time and amassed substantial wealth. This is forecasted to attract additional sellers looking to capitalize on favorable market circumstances, resulting in increased competition and a rebalancing of the housing market away from its previous seller-friendly bias. This bodes well for seller-buyers who have been disappointed by the scarcity of purchasing possibilities.

The median national home price for active listings declined slightly to $449,000 in July 2022, down from an all-time high of $450,000 in June and mirroring the seasonal trends seen in 2018 and 2019 when the price peaked in June and eased in July. This represents an annual growth rate of 16.6%, a slight deceleration from last month’s growth rate of 16.9%.

In addition, the median list price of listings in pending status–those homes for which the seller has already accepted a buyer’s offer to purchase–decelerated, from a year-over-year rate of 13.9% in June to a growth rate of 12.4% in July. This is the third consecutive month of pending listing price deceleration and indicates that the homes which buyers are choosing to buy are becoming increasingly less expensive than the typical listed home.

Housing Market Crash Predictions For Next Years

The overarching concern is whether or not the housing market will crash, and if so, when. The simple answer is that it will not crash anytime soon and we certainly don't see a housing market crash coming in 2022. Rising rates are cooling the market as some expected but the prices are still rising at a slower rate. The current trends and the forecast for the next 12 to 24 months clearly show that most likely the housing market is expected to see a positive home price appreciation.

In recent years, the price of homes has climbed dramatically. Many prospective buyers, especially those with limited financial resources, are eager to hear whether and when home prices will become more accessible. Here is when housing market prices are going to crash. While this may appear to be an oversimplification, this is how markets operate.

When demand is satisfied, prices fall. In many housing markets, there is an extreme demand for properties at the moment, and there simply aren't enough homes to sell to prospective buyers. Home construction has been increasing in recent years, but they are so far behind to catch up. Thus, to see significant declines in home prices, we would need to see significant declines in buyer demand.

Demand declines primarily as a result of rising interest rates or a slowing economy in general. Ultimately, for rising interest rates to destroy home values, we'd need substantially less demand and far more housing supply than we presently have. Even if price growth moderates this year, it is extremely improbable that home prices will crash. Thus, there will be no crash in home prices in 2022; rather, there will be a pullback, which is normal for any asset class. The home price growth in the United States is forecasted to just “moderate” or slow down in 2022 and 2023.

Affordability will be a concern for many, as home prices will continue to rise, if at a slower pace than the previous year. With 10 years having now passed since the Great Recession, the U.S. has been on the longest period of continued economic expansion on record. The housing market has been along for much of the ride and continues to benefit greatly from the overall health of the economy.

However, hot economies eventually cool and with that, hot housing markets move more towards balance. Housing market forecasts are essentially informed guesses based on existing patterns. While the real estate pace of last year appears to be reverting to seasonality as we approach 2022, demand is not waning.

Increasing interest rates will almost certainly have a greater impact on the national housing market in 2022 than any other factor. While sellers remain in an advantageous position, price stability and the continuation of competitive interest rates may provide some much-needed relief to buyers this year. Housing supply is and will likely remain a challenge for some time as labor and material shortages, as well as general supply chain issues, delay new construction.

The latest housing market trends show that prices are rising in most parts of the country and most price segments because of the lack of supply. Economic activities are ramping up in all sectors, mortgage rates are rising, and jobs are also recovering. The housing market remains largely a seller's market due to demand still outpacing supply. The inventory of available houses continues to be a constraint on both buyers and sellers.

Forecasting home price appreciation is a challenging task. While inventory has increased slightly, it remains significantly below pre-pandemic levels and is simply unable to meet current demand. Tight supply following years of underbuilding, combined with increased demand due to remote work, and US demographics — will continue to be a factor in 2022 & 2023. It will continue to be a seller's real estate market in 2022. Expect to see bidding wars on hot properties for sale, especially in this summer home-buying season.

References

  • https://www.realtor.com/research/
  • https://www.realtor.com/research/blog/
  • https://www.bankrate.com/mortgages/mortgage-rates/
  • https://www.blackknightinc.com/
  • https://www.freddiemac.com/research/forecast
  • https://www.realtor.com/research/2022-national-housing-forecast-midyear-update/
  • https://www.nar.realtor/research-and-statistics/housing-statistics/
  • https://www.corelogic.com/intelligence/u-s-home-price-insights/
  • https://www.realtor.com/research/top-housing-markets-2022/
  • https://www.zillow.com/research/home-value-sales-forecast-july-2022-31240/
  • https://www.zillow.com/research/daily-market-pulse-26666/
  • https://www.fhfa.gov/DataTools/Downloads/Pages/House-Price-Index.aspx
  • https://www.realtor.com/research/2021-national-housing-forecast/
  • http://www.freddiemac.com/research/forecast/20210715_quarterly_economic_forecast.page
  • https://www.nar.realtor/research-and-statistics/housing-statistics/housing-affordability-index
  • https://www.investopedia.com/personal-finance/how-millennials-are-changing-housing-market
  • https://www.freddiemac.com/research/consumer-research/20220617-housing-sentiment-second-quarter-2022
  • https://www.mba.org/news-and-research/research-and-economics/single-family-research/mortgage-credit-availability-index-x241340

Is it a Good Time to Buy a House or Should Wait Until 2023-2024

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Should I Buy a House Now?

Check out the latest housing trends if you're unsure whether it is a good time to buy a house or if should you wait until 2023. It’s becoming harder to buy a house as prices are up year over year, and mortgage rates are soaring in 2022. At the same time, consumer prices on everything are also on the rise making it even more difficult to save money to buy a house next year.

In an effort to tamp down inflation, the Federal Reserve is raising interest rates every month. The Fed hiked interest rates by three-quarters of a percentage point, following a similarly aggressive rate hike in June which was already weighing on housing, business investment, and consumer demand. The Fed has raised interest rates in less than four months which it took three years to do the previous time.

The cumulative effect of these sharp rate increases has cooled the housing market and caused the economy to slow, but has done little to lower inflation. Although Fed doesn't control mortgage rates it has a ripple effect on the mortgage industry. The recent rate hike will correspond with a rise in the prime rate and immediately send financing costs higher for many forms of consumer borrowing. On the flip side, higher interest rates also mean savers will earn more money on their deposits.

Don’t expect much relief in the form of lower rates in the coming months. Therefore, it certainly does not seem to be a good time to buy a house as rates have risen much more rapidly in 2022 than most industry analysts and economists had initially predicted. But when it comes to the possibility of significant savings, looking for the best mortgage offer provides an outstanding return on investment. Because it only takes a little more effort to browse around for the greatest mortgage rate, why not take advantage of it?

<<< Will the Housing Market Crash in 2022 or 2023? >>>

Is it a Good Time to Buy a House or Should You Wait?

As we write this, the average rate for the benchmark 30-year fixed mortgage is 5.47 percent (source: Bankrate). It is a decrease of 23 basis points from a week ago. At the current average rate, you’ll pay a combined $561.53 in principal and interest for every $100,000 you borrow to buy a house. That’s down $15.07 from what it would have been last week.

The average 15-year fixed mortgage rate is 4.71 percent, down 16 basis points over the last week. At that rate, monthly payments on a 15-year fixed mortgage will be around $517 per $100,000 borrowed to buy a house. The larger monthly payment may be harder to fit into your budget than a 30-year mortgage payment, but it has huge advantages: You'll save several thousand dollars in interest and create equity much faster.

Let's compare the figures between now and six months ago when the buyers financed their houses with a mortgage. On a $300,000 loan, a 30-year, fixed-rate mortgage at December’s rate of 3.11% would have meant a monthly payment of about $1,282 (Principal & interest).

  • Loan amount = $300,000
  • Total interest paid = $161,923
  • Total cost of loan = $461,923

Today’s rate of 5.47% brings the monthly payment to $1,697 (Principal & interest). That’s an extra $415 a month or $4,980 more a year and $149,655 more over the lifetime of the loan.

  • Loan amount = $300,000
  • Total interest paid = $311,578
  • Total cost of loan = $611,578

The Fannie Mae (FNMA/OTCQB) Economic and Strategic Research (ESR) Group revised downward its forecast for total home sales growth in 2022 to a decline of 15.6 percent, compared to a decline of 13.5 percent predicted last month, but revised upward its home price appreciation forecast to 16.0 percent year-over-year-growth in 2022 from the previously projected 10.8 percent.

The group continues to anticipate a strong deceleration in home price growth going forward due to the lagged effects of higher mortgage rates and the slowing economy weighing on purchase demand.

If the economy suffers a downturn, mortgage interest rates will very probably fall to about 4% or even lower. If it does, this could be a good time to put off buying a home and save some money, especially for first-time buyers. Fannie Mae forecasted at the start of the year that the average 30-year fixed mortgage rate will rise from 3.1% to 3.3% by the end of 2022.

The Mortgage Bankers Association was somewhat more optimistic about mortgage rates, projecting that the average rate will increase to 4% by the end of 2022. It is now evident that neither Fannie Mae's nor the Mortgage Bankers Association's predictions were even somewhat accurate.

The 30-year fixed mortgage rate, which hovered at 3% throughout 2021, is treading close to 6 percent, a steep increase from last year. Some experts are forecasting that the 30-year, fixed-mortgage rate will vary from 5% to 7% by the end of 2022.  According to Nadia Evangelou, director of Forecasting for the National Association of Realtors, rates may exceed 6 percent. They did momentarily before the Federal Reserve's June announcement of a rate rise, but have subsequently backed off.

Between July and September, expect rates to keep rising, albeit more slowly, with averages somewhere between 6 percent or 6.25 percent, says Rick Sharga, executive vice president of Market Intelligence for ATTOM Data Solutions. The most likely scenario is that the Fed will continue to raise the fed funds rate to combat inflation and will continue to reduce its position in the market for mortgage-backed securities. Both of these acts will increase mortgage interest rates. The next meeting of the Federal Reserve and subsequent rate decision will occur at the end of July.

As a buyer, you do not want to hear this because higher interest rates make home loans less affordable. Rising rates make homes more expensive for buyers, and, for prospective borrowers, steeper monthly mortgage payments. It will thereby reduce the demand for home purchases. The latest housing stats for June already point to an increasing inventory amidst moderating demand. The mortgage credit availability has already dipped for three consecutive months, largely due to shrinking refinance loans, according to the monthly Mortgage Credit Availability Index.

MCAI fell by 0.9% to 120 in May, the lowest level since July 2021, according to the Mortgage Bankers Association. A decline in the availability of mortgage credit can also make it more difficult to qualify for a mortgage and buy a house. Not to mention it is a seller's market across the country due to the high demand and low supply of homes. Although the inventory of homes for sale increased again in June there are a little less than two-thirds the number of homes available compared to June 2020, and less than half compared to June 2019.

The intense competition for housing results in fewer options, higher prices, and faster sales. In a seller's housing market, there are more interested buyers than available homes and that makes it a difficult time to buy a house, especially for first-time buyers. According to the NAR, the national median price for existing homes sold in June was $416,000, up 13.4% from the same month in 2021.

This is the longest streak of year-over-year growth ever recorded, spanning 124 months. Also, the price exceeded $400,000 for the second time. 88 percent of homes sold were on the market for less than one month and they typically remained on the market for 14 days, down from 16 days in May and 17 days in June 2021.

Fannie Mae released a nationwide housing survey in July 2022 that reveals only 20 percent of respondents believe it is a good time to buy a house.

“In June, a survey-record 81% of consumers reported that the economy is on the wrong track, suggesting to us – and corroborated by other recently released consumer confidence measures – that people appear to be growing increasingly frustrated with inflation and the slowing economy,” said Doug Duncan, Fannie Mae Senior Vice President, and Chief Economist.

The Home Purchase Sentiment Index® (HPSI) decreased 3.4 points in June to 64.8, its second-lowest reading in a decade. The HPSI is down 14.9 points compared to the same time last year. 75 percent of consumers indicated that it is not a good time to buy a house in 2022. If you compare it with the previous month's survey, 79 percent of the consumers responded that it is not a good time to buy a house.

In addition, 67 percent of respondents in June anticipate that mortgage rates will continue to rise over the next 12 months. The consumers reported challenging homebuying conditions due to the budget-tightening effects of inflation, rising mortgage rates, and substantial home price appreciation.

Is 2022 a Good Time to Buy a House?

The percentage of respondents who say it is a good time to buy a home increased from 17% to 20%, while the percentage who say it is a bad time to buy decreased from 79% to 75%. As a result, the net share of those who say it is a good time to buy increased 7 percentage points month over month.

Is 2022 a Good Time to Sell a House?

The percentage of respondents who say it is a good time to sell a home decreased from 76% to 68%, while the percentage who say it’s a bad time to sell increased from 19% to 26%. As a result, the net share of those who say it is a good time to sell decreased 15 percentage points month over month.

Home Price & Mortgage Rate Expectations

According to the survey, in June, the percentage of respondents who say home prices will go up in the next 12 months decreased from 47% to 44%, while the percentage who say home prices will go down increased from 23% to 27%. The share who think home prices will stay the same decreased from 25% to 23%. As a result, the net share of Americans who say home prices will go up decreased 7 percentage points month over month.

The percentage of respondents who say mortgage rates will go down in the next 12 months increased from 4% to 5%, while the percentage who expect mortgage rates to go up decreased from 70% to 67%. The share who think mortgage rates will stay the same increased from 20% to 21%. As a result, the net share of Americans who say mortgage rates will go down over the next 12 months increased 4 percentage points month over month.

Is It a Good Time to Buy a House or Wait Until 2023?
Source: Fannie Mae

The HPSI is constructed from answers to six of 100 national housing survey questions that solicit consumers’ evaluations of housing market conditions and address topics that are related to their home purchase decisions.

Is it a Good Time to Buy a House for First-Time Buyers?

According to a recent Fannie Mae survey, many consumers are hesitant to buy a home in 2022. About 67% of survey respondents expect mortgage rates to increase, and there are rising concerns about job stability and escalating housing prices. Some homebuyers will find the current market conditions easier, while others will find them more difficult to buy a house. The current upward trend in home prices is likely to continue throughout the year, which could price out some prospective buyers.

However, it is anticipated that prices will rise at a slower rate than they did in 2021. The current lack of entry-level supply and the rapid increase in mortgage rates appear to be negatively impacting potential first-time homebuyers in particular, as evidenced by the larger proportion of younger respondents (aged 18 to 34 years old) who believe it is a bad time to buy a house. The advantage of the historically low mortgage rate environment of the previous year appears to have diminished for first-time homebuyers, and affordability is projected to become an even greater constraint for them in the future.

In June 2022, the first-time buyers were responsible for 30% of sales, up from 27% in May and down from 31% in June 2021. According to NAR, the annual share of first-time buyers was 34% in 2021. Individual investors or second-home buyers, who make up many cash sales, purchased 16% of homes in June 2022, unchanged from May and a slight increase from 14% in June 2021.

In 2022, rising mortgage rates are piling onto record-breaking home prices, locking even more potential buyers out of the red-hot housing market. Historically, rising interest rates cause more prospective buyers to delay purchases, and the recent increase in financing terms has already resulted in a decline in mortgage applications.

The prices are not going down in 2022. The various forecasts from experts show that 2022 will remain a sellers' housing market, and home values may still increase by double-digit percentage points. While affordability concerns continue to grow, low mortgage rates, increased savings, and a strengthening job market all contribute to making homeownership more accessible to a wide number of prospective buyers.

Realtor.com’s June 2022 data shows a significant turning point in inventory. The number of homes actively listed for sale has increased by the biggest margin in the history of the statistics compared to the previous year, indicating a second consecutive month of inventory improvement. This inventory reversal is the result of sellers entering the market and demand slowing.

Compared to the recent past, a greater number of newly listed residences joined the market in June (+4.5 percent year-over-year), but at a little slower rate than in May (+6.3 percent year-over-year). In June, pending listings, decreased significantly (-16.3 percent year-over-year) as compared to the same month last year.

In spite of this, homes remain on the market for a shorter duration than they did a year ago, and prices continue to rise, driven in part by an increase in newly listed bigger properties and delayed revisions in seller expectations.

  • In June 2022, the nationwide median listing price for active listings was $450,000, an increase of 16.9 percent year over year and 31.4 percent compared to June 2020.
  • In large metros, median listing prices grew by 13.3% compared to last year, on average.
  • Nationally, the typical home spent 32 days on the market, down 4 days from the same time last year and down 37 days from June 2020.
  • The national inventory of active listings increased by 18.7% over last year.
  • The total inventory of unsold homes, including pending listings, still declined by 1.4% due to a decline in pending inventory.
  • More new listings entered the market in June compared to last year, though slightly down from May's new listing growth.
  • Newly listed homes were up 4.5% nationally compared to a year ago, and up 3.1% for large metros over the past year.
  • Sellers listed at roughly the same rate as in 2017 to 2019, prior to the pandemic, up slightly by 1.0%.

Sellers are responding to a softening of demand. The share of homes having their price reduced increased from 7.6% last June to 14.9% this year but still remains 3.2 percentage points below typical 2017 to 2019 levels. In June, all but one of the top 50 metro areas witnessed an increase in price decreases. Price growth in the nation's largest metropolitan areas has been slower than in other regions, but much of this can be attributed to new inventory introducing relatively smaller homes to the market in 2018.

Housing Markets that saw the largest year-over-year increase in listing prices in June 2022:

  • Miami, where the median listing price grew by +40.1%
  • Orlando, where the median listing price grew by +30.6%
  • Nashville, where the median listing price grew by +30.6%

Housing Markets that saw the greatest increase in their share of price reductions compared to last year:

  • Austin (+24.7 percentage points)
  • Phoenix (+22.2 percentage points)
  • Las Vegas (+20.1 percentage points)

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).

Conclusion: The Best Time To Buy A Home Depends On You

Higher interest rates pose a challenge to existing homeowners looking to buy a new home at the same time as selling their current home. Existing homeowners may benefit from lower interest rates than those offered right now because they already have mortgages. Their monthly expenses could rise dramatically as a result of the purchase of a new property.

In other words, if you don't have a specific date in mind for when you want to buy a new property, you may be better off waiting till it does. Every potential buyer's best time to buy a property is different, and the greatest time to buy a house is not the same for everyone. It’s essential to consider your financial situation and understand how buying will impact your bottom line each month.

References

  • https://www.realtor.com/research/june-2022-data/
  • https://www.bankrate.com/mortgages/todays-rates/
  • https://www.nar.realtor/research-and-statistics/housing-statistics/existing-home-sales
  • https://www.bankrate.com/mortgages/will-mortgage-rates-go-up-in-july-2022/
  • https://www.fanniemae.com/research-and-insights/surveys-indices/national-housing-survey

Investors Are Buying a Record Share of Homes in 2022

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Real estate is getting increasingly popular among investor groups in 2022. Investors bought more properties last year since home prices grew quickly and there were fewer homes for sale. They are eyeing growing prices because rental payments are also soaring, which encourages investors who want to rent out the houses they purchase. Many individuals who cannot locate a home to purchase are compelled to rent as a result of the housing supply constraint. In addition, investors who “flip” properties stand to make a substantial return as housing values increase.”

In the fourth quarter of the previous year, real estate investors acquired 18.4% of U.S. houses, according to Redfin. It was 12.6% a year ago and 17.4% in the third quarter. Although investor market share touched a record in the fourth quarter, the number of properties acquired by investors fell 9.1% from the third-quarter peak. In the fourth quarter, investors acquired 80,293 properties, up 43.9% year-over-year. Third-quarter investor house acquisitions were 75.3% cash. So, how are investors performing this year? Here's the summary of the latest Realtor.com® Investor Report for 2022.

Note: In their research, Realtor.com® analyzed deed data from January 2000 to April 2022 in 263 metro regions with more than 100 investor transactions in the year ending April 2022. They only considered single-family residences, condominiums, townhomes, and rowhomes, excluding multi-family buildings. They try to capture buy-and-hold investor purchases, excluding flippers. Some flipping activity is likely included as it is not always clear up-front whether an investor purchase is intended for a flip or buy-and-hold.

Investors Bought a Record-High Share of Houses in Spring 2022

Investor buyer trends 2022
Source: Realtor.com®

Realtor.com® defines an investor as a buyer or seller that was/is an absentee owner and that has a name that includes the following: LLP, LP, LLC, GP, or TRUST. According to their spring 2022 report, the investor proportion of house sales has declined significantly from its all-time peak in February 2022 but is about double its 2014/2015 level. After dropping in the early months of the pandemic, investors' proportion of house purchases has increased over the past two years, exceeding non-investors' growth and reaching a new high of 9.7 percent in February 2022.

Nonetheless, investor purchases have declined substantially in tandem with non-investor purchases since February 2022, bringing their entire buy percentage to 9.5%. However, the current proportion of investment purchasers is approximately double the proportion at the same stage in 2014/2015. In April, investors bought 9.5% of properties sold, up 2.8% from the same period last year but down from February's 9.7% peak.

After months of surpassing non-investor purchasers, investor behavior has paralleled non-investor behavior since February. 2021 investor house purchases surged 64% over 2020 when the COVID-19 outbreak hurt investor activity. 2021 purchasing was up 39% from 2019 before the epidemic. While investor purchases were down in January and February, they were up 31% in April and 64% over the same period in 2019, while total sales were down 8% and up just 7%.

Investors' percentage in house purchases is near record highs. In April, investors bought 9.5% of properties, down from 9.7% in February but up by 2.8% year-over-year. This high percentage is driven by both investor purchases and non-investor purchasers, who bought 11% fewer properties in April than a year earlier. The investor proportion of house purchases is almost double what it was in April 2015 (4.8%), but its growth pace has slowed compared to February after 19 straight months of increase.

Their data shows investor purchases under a corporate name. Cash purchases are overrepresented in the statistics because small investor activity under individual names isn't included. Pre-pandemic standards for investors buying properties with cash have changed. In September 2021, 78 percent of investors bought with cash, comparable to 2009 to 2015.

Larger investors with greater equity may have increased demand. Another is greater iBuying activity during this time. Since September, investors' cash purchases have fallen while mortgage purchases have risen. With borrowing rates so high, this pattern may alter in the coming months.

Larger Investors Grew Their Share of Purchases in 2021 to 35%

Despite the fact that smaller investors continue to acquire the highest proportion of properties among the group of investors we've found, bigger investors have overtaken smaller investors in terms of activity increase over the past year. Smaller investors, defined as those who have acquired 10 or fewer properties since their data collection began in 2001, accounted for 64 percent of investor-purchased homes in July 2020, just after the commencement of the COVID-19 epidemic.

Nevertheless, as housing demand surged and rents climbed over the last year, bigger investors, defined as those who have acquired more than 50 properties since 2001, raised their proportion of investment purchases from 18 percent in July 2020 to 42 percent in August 2021. Since August, demand from bigger investors has decreased to 32 percent in April, but their sales share has stabilized above historical norms, grabbing market share from both small and medium-sized investors.

Large home investor sale increase is attributable to Opendoor, Offerpad, and Zillow iBuyer activity (prior to their exit from iBuying). iBuyer's significant investor stake was 30% in 2021. In 2022's first four months, it was 22%. Large investor purchases fell from 32% to 27% in April when iBuyer data was removed. Among non-iBuyer big investors, demand peaked in August and has subsequently decelerated.

While investors are buying a record number of properties, the margin between their buying and selling has shrunk since August. August 2021 saw investors buying 14,000 more properties than selling. By 2022, the margin was 2,300 dwellings. While investor purchasing surpassed selling in March and April, investor selling is up 24 percent from April 2018 and 28 percent from April 2019.

real estate investor contribution 2022
Source: Realtor.com®

Charlotte Saw Greatest Growth in Investor Interest

Southern metros saw the most investment activity last year, followed by the West. Larger investors raised their purchases more than medium or smaller investors in the South and West. Investors bought 20% of Charlotte-Concord-Gastonia properties in the year ending April 2022. Branson, MO (19.5%), Birmingham-Hoover, AL (18.9%), Summit Park, UT (18.6%), and Memphis, TN (18.5%) had the highest investment activity.

Three of the top five metros where investors bought the most homes were in the South, which experienced the most investor interest and the most increase over the last year. In eight of the top 10 metros, investors paid less than the median price in April 2022. Summit Park, UT, and Branson, MO were outliers. In these eight metros, investors bought properties for 16% less. The median investor purchase price was $295,000 in April, 15% less than the median selling price overall and 10% less than the median investor house sold. In all 10 areas, investors bought more houses than they sold in April, vying with purchasers for limited inventory.

Metro Average Investor Purchase Shares and Change in Shares

Region Average of 12 Months End April 2021 Average of 12 Months End April 2022 Average of yy percentage point change
Midwest 5.9% 7.6% 1.7%
Northeast 4.3% 5.7% 1.4%
South 6.6% 9.5% 3.0%
West 4.6% 6.8% 2.1%
Overall Average 5.7% 8.1% 2.3%

Not all major investor markets showed increased interest in the last year. Charlotte-Concord-Gastonia, NC-SC (+0.7%), Jacksonville, FL (+10.2%), and Birmingham-Hoover, AL (+8.8%) witnessed the most investor market share growth. Eight of the top 10 metros with the biggest growth in investor purchases over the past year are very cheap South metros with median list prices as or more reasonable than the typical home nationally.

The average April 2022 listing price in the top 10 metros where investors are rising was $372,000, compared to $450,000 nationally. Investors bought cheaper properties in all 10 markets. They bought properties 13 percent lower than April's median price. Except for Danville, VA, investors acquired more properties in April than they sold.

Source: https://www.realtor.com/research/investor-report-april-2022/

Housing Market: Should You Buy a Turnkey Property or Fixer-Upper?

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The current housing market means you’ll likely pay top dollar for a home that’s considered turnkey — immediately ready for you to move in. Plus, the competition is steep. Perhaps those two reasons are why 52% of American homebuyers are looking for a starter home or a fixer-upper rather than a forever home, according to TD Bank‘s First-Time Homebuyer Pulse, which polled buyers planning to purchase in 2022. If you’re struggling with whether to keep combing the housing market for a move-in-ready home that fits your budget or to take your chances with a fixer-upper, here’s the expert insight you need.

Pros of Buying a Fixer-Upper

Buying a fixer-upper can provide you with advantages that a turnkey home doesn’t offer. Consider the following.

Cheaper Taxes

“Fixer-uppers can be a great way to get a deal on a property and save money on taxes,” said Jeremy Luebke, founder of WeLoveLand. “In many cases, fixer-uppers are sold for less than the market value because the seller is motivated to move the property quickly. This can be a great opportunity for bargain hunters. Additionally, fixer-uppers often come with significant tax breaks. The government offers tax breaks for people who rehabilitate or redevelop properties, so if you’re planning to do major work on your fixer-upper, you may be eligible for some significant tax deductions.”

Flip Potential

“The big advantage to taking the risk on a fixer-upper is the equity you build while improving the value of the property,” said Doug Greene, owner of Signature Properties. “This is the flip potential that exists, while in a turnkey home you are essentially buying the property at full price (i.e., market value).”

Potential for Creativity

“An advantage of purchasing a fixer-upper is the opportunity to put money into the features of your house that are most important to you,” said John Riedl of Easy Cash Offer Florida. “Do you want a modern kitchen? What about a luxurious soaking tub? If you are purchasing a property that is move-in ready, you can find yourself subject to the taste and interests of the past owner.”

Riedl also pointed out that fixer-uppers give you a lot of control over the renovation process by selecting paint colors, floor materials, contractors, and anything else you desire.

Cons of Buying a Fixer-Upper

Time, money and effort are all required when it comes to getting a fixer-upper where you want it to be. Here’s more on the potential disadvantages of going this route.

Renovation Costs

“The cost of labor and materials is near its highest price ever, and if you are hiring contractors to perform work on your home, unless you have a crew on standby, it could be months before the work is done,” said Tony Grech real estate investor and lending expert with Luxury Mortgage. “Just like there is a shortage of home inventory that has driven prices up, there is a shortage of qualified tradespeople as well as a shortage in raw materials due to supply chain issues that stretch back to the beginning of COVID. So you save $20,000 or $30,000 on the price of the home, but it costs you $60,000 to perform the work that you want.”

Effort

Beyond the costs in labor and materials, renovating a home comes with some other headaches and risks,” said Brian Davis, real estate investor and founder at Spark Rental. “You have to navigate the treacherous waters of permits, which involves not just filing fees and dealing with the permit office, but also hassling with inspectors.”

Ryan Fitzgerald, owner of UpHomes also said that renovating a fixer-upper requires a lot of effort. “Renovations are time-consuming and stressful so make sure you’re up for the challenge if you decide to get a fixer-upper,” he cautioned. “If you don’t want to deal with the construction, managing contractors, and living in a home that isn’t finished, a fixer-upper may not be the best choice for you.”

Live Richer Podcast: First-Time Homebuying During Inflation: Is It Worth It?

Pros of Buying a Turnkey Home

While a home that’s ready to move in will likely cost much more than a fixer-upper, there are some definite advantages that are worth considering.

No Renovation Costs

“When you purchase a turnkey home, the price you see is the price you pay,” said Luebke. “There are no additional costs for things like landscape or certain home upgrades. This can be a big advantage when budgeting for your new home. You know exactly how much money you need to bring to the table, and there are no unpleasant surprises down the road.”

Minimal Effort Required

If you’re looking to move in and start enjoying your new home as soon as possible, turnkey home is a perfect choice. “Turnkey homes require much lower effort because you can move right in and start enjoying the home after you unpack,” said Ryan Fitzgerald, owner of UpHomes.

Cons of Buying a Turnkey Home

However, buying a turnkey home also comes with a few drawbacks. It’s up to you to decide if they are worth it.

More Expensive Taxes Upfront

While you can get a lower property tax rate by buying a cheaper fixer-upper, that’s likely not the case with a turnkey home.

“If you opt for a turnkey home, the municipality will have likely already caught up to the new assessed value by the time you move in,” said Greene. “It’s usually the sale of the property that triggers a property reassessment in the system.”

Flip Potential Is Nonexistent

“Buying turnkey is certainly the way to go if you have no desire to make repairs to a home and want it move-in ready,” said Jeff Shipwash, CEO of Shipwash Properties LLC. “Unfortunately, in today’s market, turnkey properties are at a premium. This means you will more than likely have strong competition and will be paying top dollar for it. This results in buying with little to no equity to spare.”

And without any equity to spare, there is no flip potential.

Limited Opportunities for Creativity or Customization

“The home might not be exactly what you want,” said Luebke. “Since the home has already been built, you may be limited in terms of customizations or changes that you can make. The home might come equipped with most, if not all, of the features and amenities that you desire, but there is always the chance that something will not be quite to your liking. This can be frustrating if you have specific ideas about how you want your new home to look and function.”

>>This article originally appeared on GOBankingRates.com.<<

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