As
the spring housing market kicks off, you likely want to know what you can
expect this season when it comes to buying or selling a
house. While there are multiple factors causing some uncertainty, including the
conflict overseas, rising inflation, and the first rate increase from
the Federal Reserve in over three years — the
housing market seems to be relatively immune.
Here’s
a look at what experts say you can expect this spring.
1. Mortgage Rates Will Climb
Freddie
Mac reports the 30-year fixed mortgage rate has increased by
more than a full point in the past six months. And despite some
mild fluctuation in recent weeks, experts believe rates will continue
to edge up over the next 90 days. As Freddie Mac says:
“The Federal Reserve raising short-term rates and signaling
further increases means mortgage rates should continue to rise over the course
of the year.”
If
you’re a first-time buyer or a seller thinking of moving to a home that better
fits your needs, realize that waiting will likely mean you’ll pay a higher
mortgage rate on your purchase. And that higher rate drives up your monthly
payment and can really add up over the life of your loan.
2. Housing Inventory Will Increase
There
may be some relief coming for buyers searching for a home to purchase. Realtor.com recently reported that the number
of newly listed homes has grown for each of the last two months.
Also, the National Association of Realtors (NAR) just
announced the months’ supply of inventory
increased for the first time in eight months. The inventory of
existing homes usually grows every spring, and it seems, based on recent
activity, the next 90 days could bring more listings to the market.
If
you’re a buyer who has been frustrated with the limited supply of homes
available for sale, it looks like you could find some relief this spring.
However, be prepared to act quickly if you find the right home.
If
you’re a seller, listing now instead of waiting for this additional competition
to hit the market makes sense. Your leverage in any negotiation during the sale
will be impacted as additional homes come to market.
3. Home Prices Will Rise
Prices
are always determined by supply and demand. Though the number of homes entering
the market is increasing, buyer demand remains very strong.
As realtor.com explains in their most recent Housing Report:
“During
the final two weeks of the month, more new sellers entered the market than
during the same time last year. . . . However, with 5.8 million new homes
missing from the market and millions of millennials at first-time buying ages,
housing supply faces a long road to catching up with demand.”
What
does that mean for you? With the demand for housing still outpacing
supply, home prices will continue to appreciate. Many experts believe
the level of appreciation will decelerate from the high double-digit levels
we’ve seen over the last two years. That means prices will continue to climb,
just at a more moderate pace. Most experts are predicting home prices will not
depreciate.
Won’t Increasing Mortgage Rates Cause Home Prices To Fall?
While
some people may believe a 1% increase in mortgage rates will impact demand so
dramatically that home prices will have to fall, experts say otherwise. Doug
Duncan, Senior Vice President and Chief Economist at Fannie Mae, says:
“What I will caution against is making the inference that
interest rates have a direct impact on house prices. That is not true.”
Freddie
Mac studied
the impact that mortgage rates increasing by at least 1% has had on home prices
in the past. Here are the results of that study:
As
the chart shows, mortgage rates jumped by at least 1% six times in the last
thirty years. In each case, home values increased.
So
again, if you’re a first-time buyer or a repeat buyer, waiting to buy likely
means you’ll pay more for a home later in the year (as compared to its current
value).
Bottom Line
There
are three things that seem certain going into the spring housing market:
- Mortgage rates will continue to
rise
- The selection of homes
available for sale will modestly improve
- Home prices will continue to
appreciate, just at a slightly slower pace
If
you’re thinking of buying, act now before mortgage rates and home prices
increase further. If you’re thinking of selling, your best bet may be to sell
soon so you can beat the increase in competition that’s about to come to
market.