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where is the housing market headed

The housing market can be something of a rollercoaster for buyers who are hoping to find great deals while battling rising interest rates and steep competition for properties. Home prices have been on a steady incline, with prices up 10.9% year over year, as of June 2022. No one really knows where the housing market is headed next but experienced advisors can provide you with assistance to prepare for all scenarios. You can work with a financial advisor to help you find the ideal time to purchase real estate or to find the right place to put your money if the timing isn’t right.

Housing Prices and Supply Are Up

One of the biggest challenges of buying a home is finding a property you can afford. Unless you’re able to pay in cash, you’ll likely need a mortgage to buy a home. Your mortgage payments need to be realistic for your budget, which becomes more and more difficult for many if housing prices continue to climb.

Homebuyers have seen plenty of sticker shock over the last few years. As of June 2022, the median home price was $427,844, according to Redfin. Rewind to five years ago, when the median home price was $276,185 and it’s easy to see that homebuying has gotten much more expensive.

There are different reasons for the leap in home values, many of which can be attributed to the COVID-19 pandemic. Increased demand for homes has been a significant factor, while inflation has pushed up the cost of building new homes. Low inventory has also been an issue as many homeowners have opted to hold onto their properties, rather than listing them for sale.

The total home supply is up 3.1% year over year, according to Redfin’s data, while the number of newly-listed homes over that same period is down 2.9%. The median time on the market is still just 18 days, which suggests that plenty of eager buyers are still snapping up deals as quickly as possible.

Mortgage Rates May Be Keeping Buyers Out of the Market

After a lengthy period of historically low rates, mortgage rates are once again on the rise. As of July 2022, the weekly average 30-year mortgage rate was 5.54%, according to Freddie Mac. Average rates for a 5/1 ARM were set at 4.31%

Higher mortgage rates can translate to higher mortgage payments, which may be an obstacle for some buyers. While the early part of the pandemic saw many existing homeowners rushing to refinance to capitalize on low rates, that’s a less tempting proposition now.

Will mortgage rates continue to go up? It’s a possibility, given the Federal Reserve’s position on monetary and interest rate policy. While the Fed doesn’t influence mortgage rates directly, movements in mortgage rates often track with movements in the federal funds rate. That’s the rate at which banks lend money to one another overnight.

On July 27, 2022, the Federal Reserve raised rates by 0.75 basis points, following other rate hikes in March and May. With further rate increases expected, homebuyers could be looking at even steeper rates for home loans or at the very least, they may not see much of a comedown from where rates are currently.

Where Is the Housing Market Headed?

where is the housing market headed

It’s impossible to know for sure what’s going to happen but typically what goes up must come down and that’s as true of the housing market as it is anything else. So is the housing market headed for a crash? Will there be a recession that brings home values back to earth? And how easy will it be to access credit for those seeking out mortgage loans? Let’s dive into the details to try and figure it out.

Demand for housing continues to hold relatively steady and while supply is still out of balance, the number of homes on the market is increasing. So those two factors together could help the housing market to remain strong. Whether that happens or not can depend on what happens with home prices.

Beginning in April 2022, home prices began to level off. While they’re still well above what they were a year ago, there haven’t been any significant price jumps. That could suggest a cool down is happening with pricing, which could allow more buyers back into the market.

If you already own a home, you might be wondering whether it makes sense to refinance or take out some of your home equity. Generally, refinancing only makes sense if you’re able to reduce your interest rate, payment or both. Now that rates are higher, there may be fewer bargains to be had for refinance loans. Calculating the break-even point can help you to decide if refinancing is still worth considering in the current housing market environment.

Taking out some of your home equity, either through a home equity loan or line of credit, could be tempting if your home value has increased substantially, relative to what you owe. It’s important to consider, however, whether a crash is a real possibility.

While an exact repeat of the 2008 financial crisis and housing collapse may be unlikely, a significant drop in home values could leave you upside down on the property if you owe more in first mortgage and home equity loan debt than what it’s worth. That could make it much more difficult to sell the property if you can no longer afford the home.

Should You Buy a Home Now or Wait?

The best time to buy a home is when you can find a property that checks off most of your boxes, in terms of needs and budget. Whether now is a good time for you to buy or not can depend largely on:

  • How much you have for a down payment and closing costs
  • Your total homebuying budget
  • What kind of interest rates you’re likely to qualify for
  • How stable your income is and how much you have in emergency reserves

If you don’t expect home prices to change much, you have a steady income and you’ve saved a sizable down payment, then buying a home now could make sense if you’re able to qualify for the lowest rate possible. On the other hand, if you expect home prices to dip or mortgage rates to ease, then you could save money by delaying your home purchase.

The most important thing, regardless of when you plan to buy, is to calculate how much home you can afford. That’s something you can do with an online home affordability calculator. It’s also important to shop around and compare different mortgage lenders to see who is offering the most favorable rates and terms.

Should You Sell Your Home Now?

where is the housing market headed

Now could be a good time to sell if you think home prices have hit their peak and aren’t likely to go up much from here. With supply still falling short of demand, it’s possible that you could find a qualified buyer for your home relatively quickly after listing. If you plan to list, consider getting help from an experienced real estate agent. An agent who knows the local market well can help you determine how to price your home appropriately and how to market it so you have the greatest odds of closing a deal quickly.

The Bottom Line

No one knows for sure where the housing market is headed next and what happens may depend on what happens within the broader economy. If a recession occurs, that could put a damper on a hot housing market. On the other hand, if the economy remains strong and demand for homes is steady, buyers may still face competition. You may want to seek professional guidance to see if it makes sense for your personal situation to buy or sell your house now or to wait.

Mortgage Tips

  • Consider talking to your financial advisor about where they think the housing market is headed and whether it’s a good time to buy or sell. Finding the right advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Saving a down payment is one of the biggest challenges many homebuyers face. If you’re struggling to save, you might consider down payment assistance programs or down payment gifts to get the funding you need. Down payment assistance programs can provide grants or matched savings accounts to help eligible homebuyers get the necessary funds to purchase a home.

©iStock.com/Kerkez, ©iStock.com/Natee Meepian, ©iStock.com/Natee Meepian

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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