According to Realtor.com, the number of active home listings in October increased by 33.5%. They compared from the previous year, reaching its highest level since 2020. But, the NAR reports that home sales have dropped 23.8% yearly, almost everywhere. Many people, especially first-time buyers, are now in a predicament. High prices and rising mortgage rates make it difficult to afford a home. So, many await prices or mortgage rates to decrease, and the market returns to balance. Until then, it will remain that way. Despite higher mortgage rates, falling home prices make now a good time to invest in real estate. Demand for housing has now decreased, but supply is increasing again. When will the real estate market stabilize?
Federal Reserve Intervention
In reality, the Federal Reserve is attempting to combat the rising home prices. They are raising interest rates as an effort to lower inflation. As a result, the demand for purchasing items like homes should decline. It will also make borrowing money more expensive, which should also lower prices. But things are currently coming to a halt. Following the pandemic, demand increased, and rates were low. It then led to an overheated housing market for a few years. Supply and demand in the housing market must regain their previous equilibrium.
All aspects of the economy feel affected by the Fed's rate increases. But homebuyers are feeling the effects the most. Mortgages are becoming almost unaffordable to many. As a result, we are beginning to notice a decline in demand, a decrease in home sales, and a rent increase. A less competitive housing market is now emerging. It is a result of the Fed's efforts to reduce inflation. Buyers are also taking a break due to rising mortgage rates after two years of low supply and high demand. Days for the competitive sellers' market are less in light of this decline in demand.
Rising Mortgage
A 2021 analysis by a real estate research company has a notable discovery. They were able to record the three months with the lowest premiums from home purchases. These were October, November, and December. Will that be the case this winter, though? It can be, according to a few experts. House prices have been declining as they usually do. It happens in the fall following the end of the spring and summer housing market. They will continue to decline. As a result, buyers feel forced to look at houses in lower price ranges with rising mortgage rates. This market is not a place where many will get a reasonable deal. It becomes more expensive when homebuyers take mortgage rates into account. Home buyers today pay more than they did a year ago. Buying a home is costly with a mortgage, even though home price increases are slowing. And home prices are falling month over month in most markets. This event is typical and expected this time of year due to the seasonality of the real estate market.
Inventory and the Supply Chain
Other affairs relate to the recent increase in home prices, which is not surprising. If you can get them, building material costs are way higher. Of course, this will lead to an increase in home prices. The second element of this is demand. Months of inventory decreased to 1.4 months. It happened as active listings continued to retract despite soaring demand. There would need to be twice as many homes for sale to slow the market. But, many home builders are confident they will continue to do well throughout the rest of 2022. Still, it does not imply that buying a new construction home will be simple and easy. Inventory is low across the board. Why? Because it is difficult for home builders to build enough homes to meet demand. People factor in the supply chain and raw material prices in this part. For example, rising lumber prices, supply shortages, and government tariffs will affect demand.
Rising Supply
So when will there be a balance in the housing market? The short answer is in time. The truth is there is an environment of rising rates with no end. As a result, fewer prospective homebuyers can enter the housing market. Because of this, there are more homes for sale than in recent years. But there is a chance they will remain there for extended periods. Experts believe that as we enter the following year, the home price growth rate will start to slow. It is due to the level of demand declining and supply rising. As a result, many predict that home prices will rise a little in some markets. Housing demand has increased this year. The market will soon arrive at a distinct equilibrium. Prices will have to decrease due to an increase in the supply of homes and a decrease in the number of buyers. But, there is still so much unused demand from the previous few years. As a result, they have maintained high prices, which is why they have not dropped as fast.
Final Thoughts
Many homebuyers are currently considering buying or selling a home. They have experienced the unusual trends the housing market has seen over the last few years. So, it is not surprising that things have been quite overwhelming. The truth is that forecasts for the housing market are not much more accurate than those for the weather. Real estate experts base their predictions on data. But no one can predict the future with absolute certainty. Still, those who are unsure can check out what the experts are saying. Then, they can come up with some reasonable hypotheses. So, the slowing price growth rate can be an advantage for those looking to buy. But, the high-interest rates, not so much. So, before entering the housing market this year, prepare everything needed to buy a home.
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