In the U.S., home prices have been rising for the past few years. Many housing experts are concerned that this trend is unsustainable, and we’ll see a crash in home prices sometime in the next few years. But how likely is that? What will housing prices look like in the remainder of 2022 and into 2023? And, more importantly, what can you do now to protect your financial future as a homeowner? There are many factors that go into determining where home prices are going from here. It’s also challenging to predict with any certainty because there are so many factors that affect home values that are in flux including changing interest rates, unemployment rates, local market issues, new housing supply and many other macroeconomic issues.
Recent Trends in the Housing Market
Home prices have generally been steady or falling since the beginning of 2022. Many experts believe that home prices could fall even further. According to Zillow, the average U.S. home price dropped 8% year-over-year in March, the largest monthly decline since the Great Recession. In fact, the housing market has already fallen 12% from its peak in 2018.
Housing Market Trends as of August 2022
The future of home prices depends on many factors, including the current economic environment and the rate of growth in the housing supply. Experts are predicting that home prices will continue to rise in the next few years but at a much slower rate. They believe that the current housing market is unsustainable and that prices will flatten sometime during 2023. Although some indicators point to a crash shortly, there are also indications that the economy will continue to do well. You can protect yourself from a downturn in the market by saving money for a down payment and shopping around for mortgage rates.
The price of houses is tied to interest rates because they determine how much money people have available to purchase a house. When interest rates are low, people have more money to spend on large purchases like a house. When rates are high, people have less money to spend. So even though home prices are rising, the amount of money people have to spend on a house is decreasing because of rising interest rates. This is why many economists are concerned about the future of the housing market. Most economists believe that interest rates will rise to 5.5% by the end of the year.
What this Means for Sellers
As interest rates continue to rise, some buyers will be priced out, while others will move more quickly in anticipation of another increase. "People want to buy now because they know interest rates will only rise," explains Gregory Heym, chief economist at Brown Harris Stevens. A sense of urgency is required. Homes are being listed for less time than ever before. According to Realtor.com data, the average seller accepts an offer within 31 days of advertising their home, compared to 71 days in May 2020.
According to the market data business Altos, nearly 25% of homes on the market dropped their target price in the first week of June, forcing some sellers to lower their asking price. Changes however are being seen in the market with the rise in inflation and interest rates - houses in the very recent past are receiving less offers and are sitting on the market for longer periods of time.
What this means for Buyers
Inflation drives increasing mortgage interest rates and rental expenses. According to Business Insider, mortgage rates follow the same trend as long-term bond yields. People will not take out home loans if mortgage rates rise too far. Home prices will decline as demand falls and we see this starting to play out.
The Bottom Line
The U.S. economy has been doing well in recent years, which has helped fuel an increase in home prices. But with recent inflation concerns and other concerning economic factors, a negative trend in the housing market in the near future is a real possibility. One thing to keep an eye on is interest rates, which have been rising in recent months. After years of low interest rates, analysts are predicting that they will keep increasing throughout the year. If interest rates continue to rise, it will become more difficult for new buyers to pay top dollar for homes and we expect demand to decrease in many price points. It is likely we are at or just past the peak of this cycle so those wishing to maximize the value of their home should consider selling now if personal situations allow for it.
Why choose Congressional Home Buyers?
Congressional Home Buyers is a local Washington, DC area home buyer unlike many other companies you might find on your web search when you are looking to sell your home. Dedicating to providing best in class service, competitive offers, and unmatched local market expertise, we strive to make our sellers satisfied. From making the process fast and easy to being transparent and offering great perks to sellers – those who are looking to sell their home in the DC area will not find this level of dedication to service elsewhere.