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What’s next for the US housing market

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Some buyers moved forward, while others put their home search on hold or gave up entirely as rising costs made ownership out of reach.

but, fear of recession The housing market is showing signs of a slowdown as the larger economy looms. Sales of new detached houses under And construction has stalled.Selling second-hand homes Dropped trending below 2019 levels. Applications are declining as mortgage rates remain above his 5%. lowest level in 22 years.

Zillow chief economist Skylar Olsen said: “Affordability is the biggest issue in today’s housing market, and it gets worse month by month as interest rates rise.

Mortgage interest rates stabilize

A big surprise for those looking to buy a home in the first half of this year was the very rapid rise in mortgage interest rates. According to Freddie Mac, interest rates on his 30-year fixed-rate mortgage rose from his 3.22% in early January to his all-time high of 5.81% in June this year. In recent weeks, the average interest rate has settled at around 5.5%.

“People who buy today a home they wanted to buy last year will see their monthly payments increase by 50%,” said Lawrence Yuen, chief economist at the National Association of Realtors. It’s not going to be a 50% increase in a year.Homebuyers are frustrated.This year they completely don’t believe they have no money to buy with a 6% mortgage rate.”

According to Redfin, the cost of financing housing is so high that nearly 15% of those who signed a contract to buy a home in June pulled out. That’s the highest share of canceled home sales since April 2020, when the market nearly came to a halt due to the pandemic.

But while mortgage rates may go up and down in the coming months, Yun said the biggest surge has already happened.

“Mortgage rates may be rising,” he said.

Mortgage rates may have almost already “priced in” the Fed’s current and expected future rate hikes, Yun said. He expects mortgage rates to settle near 6% by the end of the year and home sales to normalize once mortgage rates stabilize.

more inventory than last year

As the market slows, potential buyers who continue to search for homes will find less competition, more homes to choose from, and more breathing room than the frenzied market of the past two years.

Economists nearly hit their target with their home price forecasts for the first half of the year. Annual price increases peaked in the spring and moderated as the year progressed. But sales have fallen far short of expectations so far this year, says Zillow economist Jeff Tucker.

“Sales volumes have taken a much bigger hit than prices,” he said. “Buyers endured higher mortgage rates longer than we thought, which kept prices high. But some buyers started dropping out.”

Yun said he expects 2022 sales to fall about 13% from last year.

Ultimately, Tucker said, inventories will rise as sales continue to decline.

A surge in homebuying demand over the past two years has resulted in record low inventories of homes to buy and rising prices. In June, inventory surpassed the previous year for the first time in three years. The number of homes available for sale at the end of June was up 9.6% from May and 2.4% from a year ago, according to the NAR.

Home price increases will be more modest

The median house price is record high $416,000 in June.

However, the pace of price increases has slowed recently. Median home prices for existing homes rose 13.4% in June year-over-year, compared with a 23% surge in home prices in June 2021, according to the NAR.

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Moreover, prices for new homes are actually falling. According to the U.S. Census Bureau and the Department of Housing and Urban Development, the median price of new home sales fell from $444,500 in May to $402,400 in June.

“Housing price inflation is the biggest rift ever,” said Robert Frick, a corporate economist at the Navy Federal Credit Union. “If existing home prices follow suit, the year-on-year rise that has pushed millions of Americans out of the housing market may finally come to an end.”

About 10% are new homes, and about 90% are second-hand homes. And prices for most of the market haven’t fallen.

Yun said he expects house prices to rise 11% this year.that is 16.9% YoY increase More than he predicted in 2020-2021 beginning of the year.

Prices should soften for the rest of the year as inventories rise and sales decline as higher mortgage rates dampen buyer demand.

“Homes are likely to stay on the market longer, and there will be more properties with discounted prices,” Yoon said. “Buyers who do more homework may be able to find discounted homes or get better price negotiations.”

Affordability remains a challenge

Apart from the 2004-2008 housing bubble, house prices are the worst since 1989, write David M. Dworkin and Bill McBride. National Housing Conference Report.

But it wasn’t affordable during the housing bubble, as mortgage rates were as low as 1% and reset to a level homeowners couldn’t reliably pay. And in the 1980s, homes were not affordable due to incredibly high interest rates, with 30-year fixed rate mortgage rates ranging from 9% to over 18%.

Today’s market is different, researchers write. “Soaring housing costs are driven by the compounding effects of apparent production shortfalls from 2008 to 2020, housing supply chain failures from 2020 onwards, and increased demand from 2020 onwards.”

Should you rent a house or buy one?

And that is unlikely to change much by the end of the year.

new house building stuck Builders will wait to see how well the current housing supply sells before building more.

Freddie Mac chief economist Sam Cater expects homebuyer demand to continue to cool to a more normal pace of activity, but many people’s ability to buy a home remains strained. Expect.

“The Fed’s actions to help manage inflation have caused huge swings in mortgage rates and, by extension, the housing market,” Kater said. “Although the rate of increase in house prices will moderate, house prices remain high relative to homebuyers’ incomes. Taken together, these factors are exacerbating house price challenges and causing a slowdown in the housing market.”

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