March 30, 2022

Home price growth could be decelerating

As the spring 2022 home sales season begins, some numbers show the housing market might finally be cooling after more than a year of frenzied sales, though it could be a slow fade.

The share of markets with double-digit percentage growth rates fell from 78% to 67% in the fourth quarter of 2021. More than 90% of metro markets had double-digit increases as recently as the 2021's Q2.

Demand remains is still high, and prices are still rising. After cooling off ever so slightly toward the end of last year, home price gains reaccelerated in January. Demand appears to be outweighing rising mortgage rates, which would usually take some of the heat out of housing. The median existing single-family home price hit a record $362,600 in January. Home sellers realized record profits.

On the other hand, pending home sales, which measure signed contracts on existing homes, have fallen for four straight months, according to the National Association of Realtors.

While the small number of homes-for-sale will keep upward pressure on prices, most analysts see noticeable adjustments in the months ahead.

In recent months, and particularly in mid-March, mortgage rates shot up again. This after the Federal Reserve increased its baseline interest rates and began winnowing down its bond-buying activities to cool runaway inflation. The Fed has also signaled its intent to raise rates six more times in 2022.

If mortgage rates follow as anticipated, it would be an additional wet blanket for buyers already tiring from high prices. At that point, analysts believe the tide may turn. Sellers may have to begin to moderate prices even further to coax buyers back.

As the market balances, it could bring inventory to a healthier level. Existing home listings have been anemic the last five years, usually running below three months’ supply (six months’ supply is considered healthy). Record-low inventory has been worsened by supply chain disruptions and labor shortages.

Even with the increases, mortgage rates are expected to remain historically low in the next few years. Combined with more new construction inventory, analysts predict the most home sales since 2006.

First-time buyers’ share of the total purchase market has fallen steadily since the beginning of the pandemic, tumbling from 32% in November 2020 to 26% in November 2021.

Bay Equity Home Loans can guide potential homeowners to many down-payment assistance (DPA) programs. Federal, state and private options are available.

Give us a call or email today. Real estate is an asset when you own it and merely an expense when you rent. Monthly mortgage payments are a means to building wealth for your family’s future.