Without a doubt, rising mortgage interest rates are a financial shock to the U.S. home market. The average decade-long home loan rate has increased from 3.11 percent to 5.11 percent in the last month alone. It is both shutting out some strained homeowners and leading prospective borrowers to lose their credit eligibility. The rapid rise in mortgage rates has also caused research businesses to re-gear their housing prediction model.
Homebuyers have received more bad news: During January, 70% of properties for sale were the subject of a bidding war. That is the highest rate ever recorded. Simply put, 2022 hasn’t brought any respite to property buyers so far. Before 2022, there has been widespread agreement in the property sector that home price appreciation would slow dramatically this year. However, over two months into the coming year, several of those same corporations are revising their 2022 projections. Zillow predicted home price growth would slow to 11% this year, down from 18.8 percent between December 2020 and December 2021. The rate was then raised to 17.3 percent by Zillow last month.
Zillow is not the only one: Fannie Mae is the newest real estate company to raise its 2022 forecast. Fannie Mae anticipated that the average current home price would rise 7.9 percent this year. According to Fannie Mae, the median present house value in 2022 will increase between $355,000 to $384,000. That equates to an 11.2 percent increase in pricing year over year. If home prices climb another 11.2 percent, the current expansion rate will show. However, this would hardly be a consolation for home buyers. After all, the average raise that corporations expect to provide this year is only 3.9 percent.
However, Fannie Mae believes that relief will come, albeit not until 2023. Fannie Mae forecasts a 4.2 percent increase in home prices next year, with the typical existing home price rising to $395,000.
How are estimates for 2022 now being revised upward? It all comes down to a lack of available properties for sale there The fundamental issue in the property market for most of the pandemic was a shortage of inventory. A generational surge of first-time millennial homeowners flooded the market, drawn by pandemic-induced cheap mortgage rates. Nonetheless, the inventory situation was scheduled to lessen this year. Instead of rising, inventory levels have fallen more, exacerbating the housing boom. That should shift by the end of the year. Mortgage rates are rising as the Federal Reserve, concerned about inflation, suggests further rate hikes. Rising mortgage interest rates, of all, cause increasing monthly mortgage payments on residential loans. Higher mortgage payments and already exorbitant costs should generate more purchasers to pull out. When this occurs, home price rise may begin to normalize. At least, that’s what Fannie Mae thinks. In their latest outlook, Fannie Mae economists noted, “The effect of purchasers being priced out must mean fewer multiple offers and slower home price increase.”
Real estate research businesses expected the Federal Reserve to raise interest rates in 2022, but not in this manner. The Mortgage Bankers Association (MBA) predicted that the average 30-year fixed rate would rise to 4% this year, while Fannie Mae predicted a 3.3 percent mortgage rate by the end. We exceeded those projections weeks ago. As a result, real estate analysts are now lowering their home price projections. On Wednesday, Zillow analysts changed their forecast, estimating that property prices in the United States will grow 14.9 percent from March 2022 to March 2023 – This is a 2.9 percentage point decrease over last month when Zillow predicted home prices would rise 17.8 percent in the coming year.
“Affordability headwinds have developed faster than predicted, mostly due to strong rises in mortgage rates,” noted the Zillow experts. “There are other dangers to the outlook: Inventory levels remain at record lows, but they may recover faster than expected, lowering prospective price and volume of sales projections.”
It’s not surprising that Zillow has reduced its projection. After all, the rapid rise in rates is causing major affordability issues for purchasers. For example, a borrower would owe $2,138 in principal and interest on a $500,000 mortgage at a 3.11 percent fixed interest rate on mortgages in December. If carried out at a 5.11 percent interest rate, that payment would rise to $2,718. That’s an extra $208,800 over the length of the 30-year loan.
Assuming Zillow is correct and home prices rise another 14.9 percent in the next year, it will be another historically robust home price growth. Home prices have increased by a whopping 19.2 percent in the last year. Each of these percentages is an aberration compared to the average annual home price growth in the United States of 4.6 percent since 1987. “Even with the pullback from last month,” the Zillow analysts write, “these estimates would suggest a tremendously cutthroat housing market over the coming year.” However, not everyone can be as optimistic as Zillow.
CoreLogic estimates that home prices will slow to a 5% annual growth rate in the following year. On the contrary, the Mortgage Bankers Association expects home prices to climb 4.8 percent in the next 12 months, while Fannie Mae anticipates that home prices will rise 11.2 percent this year and 4.2 percent in 2023. But, of course, they may be all wrong. The Federal Reserve Bank of Dallas has discovered evidence that the U.S. home price rise outpaces underlying economic fundamentals. The Dallas Fed paper’s title is straightforward: “Real-time market monitoring uncovers a building U.S. housing bubble signals.”
“For the very first time since the early 2000s, our facts point to aberrant housing market behavior in the United States. In addition, certain economic indicators show cause for concern. ” Dallas Fed analysts noted prices appear to be growing out of line with fundamentals, “Dallas Fed analysts noted. While CoreLogic believes that a home market drop is unlikely in the near year, most housing markets throughout the country are expensive. For roughly 400 metropolitan statistical areas, the business developed a market risk assessment. What was discovered? According to CoreLogic, 65 percent of regional housing markets in the United States are “overvalued.”
Should take housing price forecasts with a pinch of salt by buyers, and sellers. Consider the housing projections issued during the COVID-19 slump. Two very different Zillow and CoreLogic presented economic models in the spring of 2020 projecting that property prices in the United States will fall by 2021. That price cut never materialized. Instead, the housing market embarked on a dominant season that is still ongoing.
