As the spring housing market kicks off, your clients likely want to know what they can expect this season when it comes to buying or selling a house. While there are multiple factors causing some uncertainty, including international conflicts, 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 can be expected 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 working with a first-time buyer or a seller thinking of moving to a home that better fits their needs, confirm they recognize that waiting will likely mean paying a higher mortgage rate on the purchase. And, that they recognize the higher rate drives up the monthly payment, meaning money paid over the life of the 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.
Buyers should be prepared to act quickly, while sellers should list sooner to avoid additional competition.
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.”
Many experts also believe the level of appreciation will decelerate from the high double-digit levels we’ve seen over the last two years. So while prices will continue to climb, it will occur at a more moderate pace than experienced over the previous 18 months. 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.
Again, this means a respite in price appreciation is unlikely. For buyers, waiting to pull the trigger on submitting offers likely means they’ll pay more for a home later in the year (as compared to its current value).
Bottom Line
There are a few 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).
Convey this to your clients and let them know the best time for a move is now.
