Buyers and sellers are bewildered by inconsistent housing market predictions, news, and statistics. Positives include record monthly price rises and never-before-seen low inventories, which bodes well for future values. Existing-home sales, while down from early-year highs is nonetheless solid. Housing metrics are still good. In the minus column, the 40% run-up in prices since the pandemic's inception and a rapid, near-doubling of mortgage rates from last autumn to near 6 percent as of now are increasing worries that house ownership has become so expensive for a big section of America that demand may collapse.
If increasing prices and rates cause purchasers to flee in droves, only a drastic price drop may bring them back. The superhot appreciation we've witnessed through May is expected to cool drastically for the remainder of the year. This move represents a significant departure from a trend of year-over-year growth that grew larger by the month. However, a pause in increases does not imply a reduction in prices. On the contrary, the fundamentals indicate that prices will continue to rise through the end of 2022 and into the next year.
The fundamentals predict values will rise until 2023. As usual, the outlook is uneven. In many metros, appreciation by 2022 will be behind what promises to be stubbornly high inflation, meaning high-priced homeowners will see their first “real” decreases in a decade or more. Ed Pinto, director of the American Enterprise Institute's Housing Center, predicts a shift from a booming to a modest sellers' market. Pinto offers a caveat. A further rise in mortgage rates or a protracted recession that boosts unemployment might lower dollar pricing.
It’s Still a Sellers’ Market in 2022
You may be wondering what this implies for your intentions to sell your property since there is increasing chatter about the real estate market cooling off from its peak frenzy during the pandemic. If you're considering a relocation, you should be aware that the market is still far from typical. Even though the supply of homes for sale has increased this year, there is still a lack of properties on the market. As a result, current market circumstances continue to favor sellers and buyers continue to struggle with rising home prices, mortgage rates, and inflation.
Total housing inventory registered at the end of June was 1,260,000 units, an increase of 9.6% from May and a 2.4% rise from the previous year (1.23 million). Unsold inventory sits at a 3.0-month supply at the current sales pace, up from 2.6 months in May and 2.5 months in June 2021. Months’ supply measures the speed of the market by calculating the number of months it would take for inventory to deplete at the current pace of sales.
Specifically, it is calculated as the ratio of active residential listings relative to the number of sales. The ratio is adjusted seasonally to remove variability during the year so markets can be tracked every month. A balanced market typically equates to 6-7 months of supply; while a buyer’s market equates to 7 months of supply and above, and a seller’s market equates to 6 months of supply and under.
It is a seller's market because the amount of available inventory of houses does not meet the current buyer demand. In a seller's market, real estate prices increase. The median existing-home price for all housing types in June was $416,000, up 13.4% from June 2021 ($366,900), as prices increased in all regions. This marks 124 consecutive months of year-over-year increases, the longest-running streak on record.
A buyer's market would exist only when there are more properties for sale than there are buyers in the market. When this occurs, buyers have the upper hand in negotiations since sellers are more eager to negotiate to sell their homes. That is not the market situation in 2022.
In a seller's market, the reverse is true. Too few properties are available relative to the number of buyers on the market, giving the seller all of the leverage. In this circumstance, purchasers will do everything possible to compete for the restricted quantity of available properties.
A market is neutral or balanced when the supply and demand are in equilibrium and there are sufficient properties to fulfill buyer demand at the present sales rate.
For the past two years, we’ve been in a red-hot sellers’ market because inventory has been near record lows. The blue section of this graph highlights just how far below a neutral market inventory still is today.
According to the above inventory graph, it is still a seller's market in 2022. The US housing market has only transitioned from a very hot sellers' market to a moderate sellers' market. Even if the market is cooling, the situation is still favorable to property sellers. While buyer demand is decreasing owing to increasing mortgage rates, houses priced correctly continue to sell quickly. For sellers, this indicates that the window of opportunity to list their home for sale has not closed. In conclusion, the current housing market continues to benefit sellers.