The good news in early 2022 was an apparent slowdown in the runaway home sales prices that had characterized the previous year. Homes that consistently sold for over the asking price seemed to be on the market longer, and there were fewer bidding wars. On the other hand, rising interest rates proved that it can still be difficult for potential buyers to trade rent payments for mortgages. Although the higher prices and rising rates have moderated demand somewhat over the past six months, it now seems clear that the desire to buy continues to be strong. In addition, prices for rental homes and apartments continue to rise, and will perhaps reach record highs before the end of the year.
What does this mean for the housing market in general? For some experts, it is a worrisome trend. For others, though, the fact that there are now more homes available for sale is a positive sign, and sales statistics are evidence that buying is still a good move.
The July 2022 Apartment List National Rent Report shows that rents climbed by 5.4% during the first six months of the year. During the same period in 2021, the increase was 8.8%. Perhaps not surprisingly, New York City holds the record for the highest rental rate increase. Sun Belt cities may find prices leveling for the remainder of the year. But rental prices are still rising faster than during the pre-pandemic years.
In other statistics, the report showed that 97 of the country’s 100 largest cities have seen rent increases during this six-month period, but that the increases were less than during 2021 in 73 cities. Analysis of rental market statistics by Realtor.com confirms that month-to-month increases continue to be posted in markets throughout the nation, and that the median rent in the top 50 American cities reached record numbers for “the 15th month in a row.”
The typical rent for a one or two-bedroom rental house was $1,849 in May, and is expected to reach $2,000 in some markets as early as October. Studio apartment rent is also climbing at record rates.
A promising sign in most markets is that housing inventory currently exceeds the number of buyers. It is hoped that the recent frenzied bidding wars may become past history. But with rates inching up to between 6.5 and 7%, the cost of buying is definitely increasing. Potential buyers must also consider the additional costs of home ownership, and plan wisely for long-term home ownership.
Analysts caution potential buyers to be more realistic about their needs, and to stay below the upper limits of their affordability range. Some recommend renting for an additional six to eight months to build a more substantial down payment, while others suggest locking in a rate with a lender as early as possible in their home search.
Escalating inflation also impacts the real estate scene. Investors and sellers may view higher prices as beneficial, while builders, buyers and renters are certain to pay more. Existing real estate will no doubt be worth more than it is currently, and the return on real estate investments also seems destined to increase. Most financial advisors still view such investments as a worthwhile hedge against inflation, whether you buy a home, or invest in real estate in another way.
Your personal financial situation and point of view will determine how you look at housing for the rest of this year, and for the future. But there is widespread agreement, now as in the past, that real estate is a wise investment.
https://www.noradarealestate.com/blog/rental-prices/
https://smartasset.com/mortgage/how-rising-interest-rates-impact-buying-vs-renting
Contractors, real estate agents, and homeowners have been hyper focused regarding what the selling market will look like within the last few months of 2022 and into 2023. Will mortgage rates be favorable for people looking to purchase a home? How much housing inventory is available to meet rising demand? What will average home prices be as we start to ease away from pandemic fears?
Before going over the future predictions, let’s take a look at where the housing market is at today. According to the National Association of Realtors (NAR) the month of July 2022 saw sales of 4.81 million units (at a seasonally adjusted rate). Median home prices averaged about $403.800 while new home sales in June were at 590,000.
The market did see a slight decline in existing home sales month-to-month than what sales were like a year ago during the same period. July sales for existing homes were at 20.2% from a year ago and down to 5.65% from July 2022. Pending sales were also slightly down by -1.0%. Home mortgage applications also saw a steep decline during July at 18.5% during July 2022 from a year ago for the same month, according to Fortune.
The slowdown of the market during the summer months isn’t anything new. Normally, the third quarter of the year (Q3) would experience a slight drop due to homeowners going on vacation, having the kids home from school, and people focusing on doing more renovations and remodeling projects to their existing homes.
When the pandemic was in full force in 2020, the housing market experienced a significant impact. While experts predicted the usual slowdown that was exacerbated by worldwide lockdowns, instead, homeowners took advantage of low mortgage rates to purchase existing homes and build new residences. Home prices skyrocketed due to this demand, which was further exacerbated by lumber shortages. Home prices skyrocketed by 20% in early 2020.
Also, the housing industry experienced an enormous gain in 2021 for single-family home and rental rates. Roughly 6.9 million in sales occurred in 2021 as there were historically low foreclosure rates and an increase in prices to 33% in 2021, states the Houston Association of Realtors (HAR).
Throughout 2020 and up into early 2022, experts predicted a housing market crash that would be similar to what occurred during the Great Depression. However, due to the unexpected demand that occurred inform 2020 up into early 2022, the market appears more stable.
Now experts are looking at the summer decline in housing sales to predict that the slowdown will continue for the remainder of 2022 and into early 2023. This slowdown means that home prices will only experience a slight increase.
This increase could average around 2.4% in the next 12 months, which is still lower than the price increases felt back in July 2022. Experts are also keeping a close watch on what the Fed will do regarding inflation and mortgage rates.
According to Yahoo News, the Feds went into a bond buying spree in 2022, which caused the financial markets to push mortgage rates from 3.1% up to a higher 5.7% for 30-year mortgages. This factor may lead to a housing correction where stringent lending requirements may slightly cool off rising home buying demands.
https://www.nar.realtor/research-and-statistics
https://www.har.com/blog_103311_housing-market-predictions-2022-2023-2024-2025-will-it-crash
https://fortune.com/2022/08/22/zillow-cuts-home-price-forecast-housing-market-2023-prediction/
https://www.yahoo.com/video/housing-market-correction-home-prices-195301195.html
While the pandemic had a major impact on workers having the ability to perform tasks safely, products across the country experienced major shortages due to supply chain issues. In the lumber industry, the commodity also experienced major changes as prices skyrocketed. Yet as we approach September of 2020, lumber prices are finally falling back to normal levels.
The pandemic caused three major factors to form: labor shortages, supply chain issues, and high housing market demand. Sawmills lowered their production of lumber as they anticipated that there would be less demand for construction projects. They also reduced their workforces to account for this decrease in production. So there were fewer workers available and a decrease in lumber supplies across the country.
However, many people started doing home remodeling projects during this period while in isolation. They also looked for new homes. These aspects created a high housing market demand that was still recovering from having low housing inventory even before the pandemic. With the high demand of construction projects and slowdown of lumber production that could not meet this demand, the price of lumber increased.
Lumber prices hit a record high of $1,733 per thousand board feet in 2021, according to Realtor Magazine. With lumber prices this high, the housing market also saw an increase in home prices. An average single family house may have seen an additional $18,600 added to the original home price. In addition, tariffs on imported Canadian lumber also increased from 9% up to 17.9%, according to USA Today.
Even with inflation still high, lumber prices are now finally falling from the record high costs in 2021. From May 2021 to Jun 2022, prices decreased up to 65%. The prices fell again about 7% up to August 3, which saw an overall decline of 71% since 2021, according to Business Insider.
Contractors may see prices ranging from $600 per thousand board feet as we enter the last few months of 2022. While this price is still higher than the $400 per thousand board feet that we had during pre-pandemic, it is still lower than the 2021 peak. In turn, construction floor plans are also seeing a decrease in prices, encouraging people to reenter the housing market.
However, the construction industry must keep in mind that affordability is still playing an important factor to construction project numbers. Mortgage rates also increased during the same period as did lumber prices.
Now as mortgage rates experience a fall of 50 basis points for 30-year mortgages, and inflation is set to lower in the coming months, more homeowners will be able to afford to build new homes and take on existing home remodeling projects that they had to forego of during 2021.
https://www.usatoday.com/story/money/2022/06/06/lumber-prices-housing-market-impact/9731433002/
https://magazine.realtor/daily-news/2022/06/03/the-lumber-bubble-may-have-just-burst