When will house price growth really slow? Will mortgage rates continue to rise? What should I know if I’m trying to buy a house now? These are all questions we hear from readers, peers and others, so we asked top economists and real estate professionals to break down what exactly is happening in the housing market right now.
Mortgage rates could continue to rise, but it depends on the economy
Already this year, average 30-year fixed rates have risen from just over 3% in January to around 6%, according to Bankrate data. And the growth may not stop there. (See the lowest mortgage rates you can get here.)
Realtor.com Chief Economist Danielle Hale says it depends on many factors, including employment reports. “If the jobs report is too strong, it is likely to trigger another hike in mortgage rates in anticipation of more action from the Fed.
And until we see lasting evidence that inflation has peaked, there’s always a risk that mortgage rates will climb higher, says Greg McBride, chief financial analyst at Bankrate. But he adds that the prospect of the Fed rushing interest rate hikes and making them sooner rather than later could actually help keep mortgage rates capped or even lower. “More rate hikes now means fewer rate hikes later, this means the timeline for reaching the peak in interest rates is advanced and this means that the eventual rate cut due to a weak economy is also happening more early,” McBride said.
And here’s an interesting take: “Real mortgage rates, the mortgage rate minus the rate of inflation, are negative for the first time in 40 years, so mortgages aren’t as expensive as they look if the inflation is taken into account. Inflation itself tends to serve as a floor for house price growth, with most quarters of the past 40 to 50 years facing house price growth outpacing consumer price growth” , says Mischa Fisher, chief economist at Angi, an internet services company that connects users. with approved pros for home projects and services.
Real estate price appreciation will cool…
“Due to the housing shortage, house prices will continue to rise in the coming months. Although inventories are improving, they will remain tight as homebuilders have cut production of single-family homes,” says Nadia Evanhelou, senior economist and director of forecasting at the National Association of Realtors (NAR). However, as many home buyers are overpriced due to low affordability, home prices will not rise as quickly as they have in previous months. “There will be a continued deceleration in house prices. Nonetheless, home prices will likely continue to experience double-digit year-over-year appreciation in August,” Evangelou said.
For his part, Hale says home prices, both median prices and sale prices, tend to slow as summer draws to a close. “I expect this year to be typical in that regard. In addition to the usual seasonal slowdown, house price growth should continue to slow as the housing market resets,” Hale said. ( See the lowest mortgage rates you can get here.)
… But overall house prices will continue to rise
For his part, Bankrate’s McBride says asking prices are down from lunar levels as potential buyers pull back. “Selling prices will stabilize as the market cools, but this cooling is just a return to the kind of balanced market that has been lacking for the past couple of years,” McBride says.
“In August, I expect house prices to rise by a mid-digit year-over-year for four reasons,” says Angi’s Fisher. Among them, common repeat sales indices like Case-Schiller and FHFA are off by a few months, so they won’t pick up the latest daily conditions. And even though affordability is at a 30-year low, there are still supply-demand imbalances in the housing stock in many desirable metropolises. Also, downward pressure on house prices is very common, and unless economic conditions force people to sell, they prefer to wait. Plus, inflation is a wild card, she adds.
Demand is receding at today’s prices, and home buyers are fewer and further apart than they have been for much of the pandemic, says Zillow senior economist Jeff Tucker. “It cools the market and pushes it towards the rebalancing it needs. The very expensive markets, where homebuyers are already on the edge of affordability and therefore more sensitive to changes in mortgage rates, in addition to the pandemic superstar markets which have grown by leaps and bounds over the past 2 years, are most likely to slow down,” Tucker says.
Meanwhile, uncertainty grows over what the economy holds, diminishing buyers’ willingness to go all out and maximize their housing budgets when widespread inflation means other important categories like gas, groceries and utilities consume a larger share of their paychecks, Hale says. “By region, we’re likely to see the biggest slowdown in home price growth in the West and South, where listing and selling prices are highest and inventories have seen the greatest recovery until recently. ‘now,” says Hale.
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