The housing market is changing. Again.
After several months of rising mortgage rates, which averaged almost 6% in June, consumers, facing rising inflation, are less interested in buying a home.
Mortgage applications are down for the second week in a row, according to data from the Mortgage Bankers Association on July 13. Applications for the week ended July 8 were down 1.7% from the previous week, despite a downward trend in mortgage rates since the end of June.
In addition, the supply of homes on the market increases as more sellers put their homes on the market, further upsetting the balance of supply and demand between buyers and sellers.
To complicate matters further, the June CPI showed that inflation continued to skyrocket last month, with prices jumping 9.1%, a 40-year high, according to the US Bureau of Labor Statistics.
With these shifting rates, rising prices and fluctuating supply and demand, what should homebuyers expect from the housing market in the coming months?
Bad news for buyers
The housing market is expected to become more expensive for consumers.
Mortgage rates have remained stable at around 3% for most of 2021. Starting in January, rates began to rise, peaking in June before starting to fall again.
Mortgage rates are now gradually starting to decline, falling for two weeks in a row as of June 7, according to Freddie Mac. The most recent data shows that 30-year fixed mortgage rates are averaging 5.3%, still significantly higher, but moving in the right direction.
But experts don’t expect the downward trend to last long.
The Federal Reserve will use the June CPI data to report its next move, which is likely to be a more aggressive rate hike in response to inflation. If rates rise, expect mortgages to rise too, Nadia Evangelou, Senior Economist and Director of Forecasting at the National Association of Realtors, says in a press release.
“Mortgage rates are likely to pick up again in the coming weeks,” Evangelou said. “Keep for updates.”
In addition to mortgage rates, houses are becoming more expensive and purchasing power is shrinking.
House prices rose 5.5% in the 12-month period ending June 2022, according to the Bureau of Labor Statistics, and the consumer dollar lost value.
“Even with a pay rise, [buyers’] income won’t necessarily be as high relative to the mortgage rate as it was a few months ago,” George Ratiu, manager of economic research at Realtor.com, told McClatchy News.
Buyers who started looking for a home in January or February will face a very different mortgage rate than when they first started looking, Ratiu said. This change explains the fall in mortgage applications and is not expected to stop anytime soon.
Good news for buyers
Although inflation raises mortgage rates and keeps them at this level, homebuyers should not lose hope.
The supply of homes on the market is growing, giving buyers more choice and power in the market. Data from Realtor.com showed that listings in June were up 18.7% year-over-year.
“The frantic pace that we saw last year, you know, 20, 30, 40 house filings is pretty much reflected in the rearview mirror,” Ratiu said. “With the supply improving, buyers can expect to see more choice in the market. They can look forward to seeing more homes for them to look at and choose from. They can also expect that an improved supply will mean they will have more bargaining power over the next six to eight months.”
Ratiu’s most important piece of advice for buyers is: “A little patience will help you.”
For buyers who can put off buying a home, late fall and early winter are likely to be a much better time to buy than this summer, Ratiu said.
In addition to record inflation, summer is usually the peak time for home buying each year, so prices tend to be higher. Given the current circumstances, while buyers may have more choice, they will also face unusually high interest rates, especially on their income.
Housing prices are likely to remain high in the next few months. When a seller sets the price for his home, he uses historical data from recent months to determine its value. According to Ratiu, due to trends in recent months, it will take four to six months for prices to come down.
For buyers who can’t wait, make sure your finances are in order.
“Make sure your credit score is as high as possible, that you have the down payment amount, that you are pre-approved,” Ratiu said.
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