Review of all things Real Estate: 2022 fall housing market predictions

After a tumultuous summer for real estate, autumn is here. As of mid-September, the benchmark 30-year fixed-rate mortgage average is hovering a bit above 6% and skyrocketing home prices are finally starting to drop, slowly, (references below). Housing inventory remains tight, however. These indicators are both good and bad news for fall homebuyers and sellers.

Wondering which direction the housing market will head in as the leaves start to change color? Curious where interest rates will land? Worried about a potential crash? Read on for fall housing predictions from the pros.

Will the housing market stay hot?

The market is cooling; dramatically. Case in point: July marked the seventh consecutive month in which existing home sales were lower than the month prior (fourth month in our market) down 20.2% year-over-year and 5.9% from the previous month, according to the most recent National Association of Realtors data.

In July, the annualized rate of home sales dropped below 5 million homes, which represents a decline of over 1 million home sales compared to 2021. Experts say that we can expect both new and existing home sales will continue to decelerate through the fall and winter months, with home price appreciation likely to end 2022 in the 2 to 3% range (which, by the way, is the traditional real estate value appreciation vice the super-heated value increases of 18-20% each of the past two years).

This decline is largely due to the impact that increased mortgage rates have had on affordability. Purchase loan applications are 23% lower than this time last year indicating that, coupled with inflation hovering around 8.5%, buyers have real concerns about affordability.

August Home Data Index Market Report shows almost 5% slowdown in home price appreciation compared to July. Year over year appreciation also fell to 16.7%, from 20% in July. Inventory has risen steeply, with the number of active listings nationwide now around 550,000 (150+ in our market, double the amount we had 4 months ago), the most since July of 2020. With price slowdown, double digit year over year home price appreciation coupled with continued high mortgage rates will continue to cool down the market.

Price corrections on homes for sale are likely coming, estimates that home prices in 89% of the country’s major metropolitan areas are overvalued (52% in our market). On the positive side, if a major lowering of prices does come to pass this fall, it could potentially allow the millennial homebuyers who have been priced out of the market to finally get a chance at homeownership.

Are we headed toward a housing bubble?

A housing bubble is defined as unsustainable home price growth caused by factors like speculative buying and loose underwriting. The word “bubble” suggests an inevitable “burst.” Is that what the current market is destined for?

The housing market today is not driven by loose lending standards, sub-prime mortgages or homeowners who are highly leveraged (100% financing). The home price appreciation in today’s housing market is supported by sound fundamentals and characterized by a shortage of supply relative to demand. That demand has largely been driven by millennial first time buyers aging into their prime home buying years, rather than fix-and-flip investors.

This is not a housing bubble; there has truly been huge demand. Banking regulations are much more restrictive thus today’s buyers are more qualified to purchase and sustain their investment. Therefore, fewer foreclosures. Some experts predict that the supply of homes for sale could take years to get to normal levels so even if there is a selloff, it won’t be a fire sale at discount prices. There’s too much equity in the market for owners to just walk away.

At a fundamental level, the labor market remains strong (historic low unemployment numbers under 4%), loan delinquencies are historically low, and supply is only 57% of where we were at the beginning of 2019; so without a major economic shock, a bubble still seems unlikely.

What will mortgage interest rates be by the end of the year?

Oh, if I had a crystal ball, I would be a rich person! That being said, the smart people who forecast our economy have indicated mortgage interest rates will rise in the fourth quarter due to the requirement to get inflation under control.

As stated in my previous article, the Federal Funds rate that is adjusted by the Federal Reserve doesn’t directly impact the mortgage interest rate, but there is an indirect effect when the funds rate is increased because that increases the cost of consumer credit which impacts the stock market.

Experts say the funds rate will increase several more times by the end of the year, so anticipate that mortgage interest rates will go up as well; perhaps even to 7%.

References:

https://www.bankrate.com/mortgages/mortgage-rates/

https://www.bankrate.com/mortgages/inflation-housing-market/

https://www.bankrate.com/real-estate/is-the-housing-market-about-to-crash/

https://www.nar.realtor/research-and-statistics/housing-statistics/existing-home-sales

https://www.bankrate.com/real-estate/unmortgaged-millennials-study/

https://www.bankrate.com/real-estate/housing-bubble/