Current Housing Market Trends 2022

The housing market is predicted to slow down further in the last quarter of 2022. For sellers, this could be terrible news, but for buyers, it's great. Yet, there is still the problem of sky-high mortgage rates. The bright side is that if buyers hold off, the supply of homes will increase, putting further pressure on sellers to decrease prices. This would constitute a long-overdue course correction for the housing market.

Mortgage rates are skyrocketing. Home sales are declining. Supply is improving. Here are the latest housing market trends as seen in October 2022. We are witnessing a sharp halt in the housing market. The average 30-year fixed mortgage rate is currently just over 7%, up from roughly 3% earlier this year. This makes an already expensive housing market even more unaffordable.

If mortgage rates continue to rise, although, at a slower rate than in recent months, demand will decrease further in the last quarter of 2022, while home prices will continue to grow year-over-year, 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.

• The median listing price trended up 13.3% in October to $425,000 as compared to the previous year and is slowly decelerating.
• The median sales price of existing homes trended up 6.6% in October to $379,100, reaching 128 consecutive months of year-over-year increases.
• Existing home sales fell 28.4% from one year ago.
• New home sales rebounded 7.5% to a seasonally adjusted annual rate of 632,000 units last month.

Looking at these latest trends, the housing market appears to be fully in the “correction” area since mortgage rates have surpassed the 7% threshold, home sales have cooled dramatically, and fears of a national recession loom large. In the fourth quarter of 2022, experts anticipate a further slowdown in sales, rising interest rates, and heightened concern among buyers and sellers over the future.

However, the housing market will not crash. The main reason is that the current housing market is not driven by lax lending rules, subprime mortgages, or overly leveraged homeowners. Home price appreciation in the current housing market is backed by fundamentals and is defined by a relative deficiency of supply relative to demand. This demand has been fueled mostly by millennials entering their prime home-buying years, as opposed to fix-and-flip investors.

It appears that most markets will experience a seasonal slowdown in the fourth quarter of 2022. The present rise in mortgage rates is likely to have a further depressing effect on house sales activity, leading to a steeper decrease in sales than is typical for the end of the year. Price cuts on homes for sale are on the upswing, and with fewer people buying expensive (higher-priced) homes, housing values could fall even farther than initially anticipated.

“Seasonality plays an important role in the housing market since it has an impact on housing demand and supply,” says Nadia Evangelou, senior economist and director of forecasting for the National Association of Realtors (NAR). “Every year, transactions and prices tend to be above-trend in the summer, while activity typically slows down by the time winter comes. Activity in the last quarter typically drops by 15 percentage points from the third quarter. Nevertheless, I believe the market will remain competitive due to tight inventory.”

Housing Market Trends for Sales – October 2022

Existing Home Sales 

With the exception of a temporary decline at the onset of the Covid 19 epidemic, existing home sales are at their slowest since September 2012. Home sales of previously owned homes rather than new construction — have been down all year. And, with both mortgage rates and housing prices staying high, buyers are unlikely to be in a hurry to make that purchase. According to new data from the National Association of Realtors (NAR), buyers are still taking a wait-and-see approach to the present housing market trends.

Existing-home sales include all non-new-construction home sales, such as single-family homes, condos, townhouses, and co-ops. According to the NAR report issued on November 18, existing-home sales in the United States declined for the ninth month in a row in October 2022. The 5.9 percent dip from September equates to a 28.4 percent year-over-year decline as compared to October 2021.

“More potential homebuyers were squeezed out from qualifying for a mortgage in October as mortgage rates climbed higher,” Yun said in a statement. “The impact is greater in expensive areas of the country and in markets that witnessed significant home price gains in recent years.”

Distressed sales – foreclosures and short sales – represented 1% of sales in October, down from 2% in September and identical to October 2021. Single-family home sales declined to a seasonally adjusted annual rate of 3.95 million in October, down 6.4% from 4.22 million in September and 28.2% from one year ago. Existing condominium and co-op sales were recorded at a seasonally adjusted annual rate of 480,000 units in October, down 2.0% from September and 30.4% from the previous year.

In October 2022, 26 percent of total sales were made in cash, up from 22% in September and 24% in October 2021. This indicates that a sizeable group of buyers is not impacted by mortgage rate changes. Investors (who make up many cash sales) made up 16% of all transactions in October, up from 15% in September, but down from 17% in October 2021. This also shows that higher interest rates have less of an influence on investors' purchases as compared to first-time buyers.

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 tops 6 percent, decreasing affordability.

The West witnessed the largest monthly reduction in existing-home sales, with a 9.1 percent drop from September and a 37.5 percent year-over-year loss. Sales in the Northeast declined 6.6 percent month over month and 23 percent year over year, while sales in the Midwest fell 5.3 percent month over month and 25.5 percent year over year. The South experienced the smallest dip, with existing-home sales falling 4.8 percent since September and 27.2 percent year on year.

The South accounted for close to half of all the sales in October, accounting for 45 percent, followed by the Midwest at 24 percent and the West at 18 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 48% of total home sales. The price segment in the $100,000 to $250,000 range accounted for 15% of total home sales. The price segment in the $500,000 to $750,000 range accounted for 19% of total home sales.

New Home Sales

New home sales unexpectedly increased in October, despite rising mortgage rates and house prices, which have severely damaged affordability. According to the Commerce Department, new home sales increased 7.5% last month to a seasonally adjusted annual rate of 632,000 units. The September sales pace was lowered from the originally reported 603,000 units to 588,000 units.

Sales increased 45.7% in the Northeast and 16.0% in the densely populated South. However, they decreased by 34.2% in the Midwest and 0.8% in the West. New home sales are volatile on a month-to-month basis. Sales dropped 5.8% on a year-on-year basis in October. The housing market has been battered by aggressive Federal Reserve interest rate hikes aimed at containing high inflation by dampening economic demand.

According to Freddie Mac data, the 30-year fixed mortgage rate surpassed 7% in October for the first time since 2002. In the most recent week, the rate averaged 6.61%. The median new home price in October was $493,000, up 15.4% from the previous year. At the end of last month, there were 470,000 new homes on the market, up from 463,000 in September.

Houses under construction made up 63.4% of the inventory, with homes yet to be built accounting for the remaining 23.6%. Completed dwellings made up 13% of the inventory, far less than the long-term average of 27%. At October's sales pace, it would take 8.9 months to clear the market supply, down from 9.4 months in September.

Housing Market Trends for Sales Prices – October 2022

According to the National Association of Realtors®, despite a drop in existing-home sales and rising mortgage rates, median sale prices remain stubbornly high. The national median sale price for existing homes is now $379,100, slightly lower than September's median of $384,800 but up 6.6 percent from last year. This marks 128 consecutive months of year-over-year increases, the longest-running streak on record. Properties typically remained on the market for 21 days in October, up from 19 days in September and 18 days in October 2021.

Sixty-four percent of homes sold in October 2022 were on the market for less than a month. However, home prices are still being supported by limited supply. At the end of October, the total housing inventory registered at the end of October was 1.22 million units, which was down 0.8% from both September and one year ago (1.23 million). Unsold inventory sits at a 3.3-month supply at the current sales pace, up from 3.1 months in September and 2.4 months in October 2021.

• The median existing single-family home price was $384,900 in October, up 6.2% from October 2021.
• The median existing condo price was $331,000, an annual increase of 10.1%.
• The median price in the Northeast was $408,700, an increase of 8% from one year ago.
• The median price in the Midwest was $274,500, up 5.9% from the prior year.
• The median price in the South was $346,300, an increase of 8% from October 2021.
• The median price in the West was $588,400, a 5.3% increase from October 2021.

Housing Prices (Listing Prices) Continue to Trend Upward – October 2022

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 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. Although price growth slows, homes are still more expensive than a year ago. The latest data for October 2022 from Realtor.com shows that the national median home price for active listings declined to $425,000 in October, down from an all-time high of $449,000 in June.

This represents an annual growth rate of 13.3%, a slight deceleration from last month’s growth rate of 13.9%, and down from a peak growth rate of 18.2% in June. The share of homes having their price reduced grew from 10.6% last October to 20.9% this year. The share is now well above 2017 (18.1%) and 2019 (17.0%) levels but is just below the share of price reductions in October 2018 (21.2%).

And, for the week ending November 19, 2022, the median listing price rose by 11% over the last year. The listing price continues to exceed last year’s level by double-digits, marking the 47th straight week at a double-digit pace. However, this week is also the 6th consecutive week of slowing price growth, a trend that has been present in fits and starts since June.

The rate of decline in home price appreciation continues, but at a more modest rate than in prior weeks, as fewer homeowners listed their properties for sale. Despite the decline in new sellers, the number of homes on the market climbed, and their time on the market increased since fewer buyers were able to compete with mortgage rates of 7%.

New listings dropped 17% from a year ago. This is the 20th straight week of year-over-year reductions in house listings, reflecting declining seller confidence. As potential sellers and builders pull back, price growth is slowing as the housing market resets. Supply is falling at pace with buyer demand, preventing an unbalanced excess that may cause a speedier price correction.

Housing Price Trends for 50 Largest Metro Combined Average

In October 2022, active listing prices in the nation’s largest metros grew by an average of 9.2%. Midwestern metros led the charge in active listing price growth, growing by 12.9% on average over the past year. Listing prices in the midwestern and southern metros of Milwaukee (+34.5%), Miami (+25.1%), and Kansas City (+21.4%) grew the most among large metros.

Western metros saw the greatest increase in the share of price reductions (+18.9 percentage points), followed by southern metros (+13.6 percentage points). Homes in Phoenix (+35.9 percentage points), Austin (+31.2 percentage points), and Las Vegas (+24.4 percentage points) showed the greatest growth in the share of homes with price reductions compared to last year.

Region	Active Listing Count YoY	New Listing Count YoY	Median Listing Price YoY	Median Listing Price Per SF YoY	Median Days on Market Y-Y (Days)	Price Reduced Share Y-Y (Percentage Points)
Midwest	12.4%	-15.0%	12.9%	7.9%	+2 days	6.8 pp
Northeast	-1.2%	-17.4%	8.1%	5.0%	+3 days	4.1 pp
South	69.9%	-9.8%	10.0%	8.8%	+6 days	13.6 pp
West	72.1%	-20.6%	5.0%	5.4%	+11 days	18.9 pp

Will Higher Mortgage Rates Crash the Housing Market?

Mortgage rates fell sharply early in the pandemic, 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. The mortgage rates are rising at the fastest pace in decades.  Housing prices are still higher than the previous year despite rising mortgage rates. Mortgage rates are slowing 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. 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 has raised 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.

Experts disagree on the direction of mortgage rates in the coming week. 64% of respondents to Bankrate's weekly poll believe that interest rates will increase, while 18% believe that they will decrease and another 18% believe that they will remain the same. It appears that mortgage rates will remain between 7% and 7.5% over the new few weeks. Rates are expected to remain unchanged in this range until the Federal Reserve sees that its monetary policy is decreasing inflation.

As of November 02, 2022, interest rates jumped for almost all types of loans compared to a week ago. The national average 30-year fixed-mortgage rate is 7.22 percent, unchanged over the last week. A month ago, the average rate on a 30-year fixed mortgage was higher, at 6.89 percent. The average rate for a 15-year fixed mortgage is 6.46 percent, up 2 basis points since the same time last week.

• At the current average rate, you’ll pay a combined $680.14 per month in principal and interest for every $100k you borrow.
• Monthly payments on a 15-year fixed mortgage at that rate will cost roughly $869 per $100k borrowed.
• Monthly payments on a 5/1 ARM at 5.55 percent would cost about $571 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.

How Mortgage Rates Have Moved in November 2022:

• 30-year fixed mortgage rate: 7.22%, the same as last week
• 15-year fixed mortgage rate: 6.46%, up from 6.44% last week, +0.02
• 5/1 ARM mortgage rate: 5.55%, up from 5.53% last week, +0.02
• Jumbo mortgage rate: 7.22%, up from 7.20% last week, +0.02

With inflation blazing and the U.S. economy chugging along, the average 30-year mortgage rate was 7.22 percent this week, no change from 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 as well).

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 the 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.

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Sources:

• https://www.realtor.com/research/
• https://www.zillow.com/home-values/
• https://www.bankrate.com/mortgages/todays-rates/
• https://www.realtor.com/research/august-2022-data/
• https://www.nar.realtor/research-and-statistics/housing-statistics/
• https://www.nar.realtor/research-and-statistics/housing-statistics/housing-affordability-index
• https://www.realtor.com/news/trends/housing-market-reset-in-buyer-friendly-direction/