Will the Housing Market Cool Off in the Third Quarter of 2022? Experts Weigh In.
Since 2020, the housing market has seen an uptick of high competition coupled with low inventory. Most people either know of a family member, friend, or neighbor that had to maneuver bidding wars…...or they themselves did. Homes have sold before they even hit the market and we’ve seen an unprecedented amount of contingency waivers.
Every state has seen property values increase. As a realtor in Connecticut, these past few years have brought every type of tricky situation my way. The solution? I used my years of expertise to guide my clients to achieve their real estate goals properly. Because homeownership dreams don’t just go away in a seller’s market. And everyone deserves to own their piece of the American pie. But with this constantly fluctuating market, there’s just one question that seems to be on everyone’s mind these days. Will the housing market continue to rise in 2022?
Interest rates are steadily climbing
In an effort to combat rising inflation, the Federal Reserve has increased interest rates. This month alone has seen an aggressive increase of 75 basis points. This is following May’s step-up of 50 basis points, together combining for the largest interest rate hike since 1994. Borrowing money isn’t as cheap as it was just a few months ago.
According to mortgage giant Freddie Mac, thirty-year fixed-rate mortgage rates are currently at 5.23 percent, up from 3.11 percent at the end of 2021. The latest interest rate increase marked the third for this year, and it’s likely we’ll see more. Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors, predicts rates will average around 5.7% by the end of 2022. So what does this mean for the real estate market?
The Mortgage Bankers Association (MBA) has already noted a steep decline in mortgage applications. Investors are starting to dip out of the market, too. This leaves less competition for homebuyers. As the pandemic continues to wane, we are expected to see an increase in sellers who were previously reluctant to put their house on the market, potentially adding to inventory levels.
In a pre-pandemic world, one without years of supply chain and labor issues, this jump in mortgage rates paired with double-digit price appreciation would have many experts predicting a decrease in demand and probably even price drops. But the reality is, record levels of low inventory for the past two years have left a large demand that can’t be easily satisfied. The pace of new home builds remains sluggish, leaving a large gap. Today’s tempo of new home builds is still below the heights of the mid-2000s, before the 2008 housing market crash.
High demand and low inventory continue to favor sellers in this market. But many real estate agents are reporting less foot traffic at open houses and fewer offers coming in at over-asking. Rising interest rates are certainly playing a role in how much buyers are willing to offer to be competitive. With interest rates continuing to rise, now might just be the best time for potential sellers to capitalize on the market.
Will real estate prices go down in 2022?
With all the elements at play, we’re likely to see slower price gains for the remainder of the year.
“I don’t think [rising interest rates] are going to stop the housing market,” weighs in Mike Fratantoni, chief economist at the Mortgage Bankers Association.
The takeaway: the market correction that happened after the Great Recession in 2008 is very unlikely to take place. Most experts agree our current housing boom has little in common with the spike that occurred in 2007. The recent home price appreciation is soundly based on low inventory and shifts in home desires. Economists use this data to defend it’s unlikely we’re in a housing bubble.
Fannie Mae predicts U.S. home prices will increase by 10.8% in 2022 but cool off in 2023 with only a 3.2% home price growth. So real estate prices aren’t predicted to drop, but it’s likely they will stop increasing by next year.
If you’re looking to buy soon and have received the advice to “try to wait out the market anticipating a cool-down period”, this might not be the best guidance. Interest rates are expected to keep rising and home prices aren’t expected to dip.
But answering when to buy is complex and highly personal. Here are some of my go-to guidelines that especially ring true now:
Keep to your budget (with current interest rates factored in)
Listen to your gut (that little voice will let you know if a house isn’t quite right)
Don’t rush to make a decision (the best antidote for homebuyer’s remorse)
The good news is…..
Compared to other states, the Connecticut housing market firmly lands as one of the least affected markets in the nationwide housing boom. In Fairfield County, the median home price rose by a mere $64,000 in the 12-month period from March 2021 to March 2022. Connecticut’s data seems tame compared to states like Utah and Arizona, which saw home values jump up by 27.1% and 27.4% respectively.
Jeffrey Cohen, a professor of finance at the University of Connecticut’s Center for Real Estate and Urban Economic Studies chimes in with his predictions for our state’s real estate market, “You might see some fluctuations, but I don’t see any dramatic increases or any dramatic decreases.”
So while no one can be completely certain what the rest of the year has in store for the housing market, many experts have weighed in with their educated predictions. Time will tell what the future holds as we head into the third buying season since the pandemic.
Are you wondering if right now is the right time for you to buy or sell? Every situation is uniquely different. Having an expert help you create a game plan can save you from making a potentially costly mistake. Or from the overwhelm of trying to tackle it on your own.
Click the link below to start the conversation. Together, we can achieve your real estate goals.