We are now seeing the first symptoms of a slowing housing market after 14 months of double-digit year-over-year house price rise.
Do not be concerned. There will be no crash. Prices may not even decrease. Instead, this will be a much-needed rebalancing from today’s unbalanced market circumstances. This is particularly encouraging news for first-time buyers.
It is reasonable that homeowners are particularly concerned about a possible housing market catastrophe; the housing market meltdown of 2008 is a recent reminder of what may happen when house prices skyrocket. And this is the hottest market we have ever seen. The average American house is now worth about 21% more than it was a year ago, a record that broken each of the last 12 months. Homes are selling in days instead of weeks. Inventory is 52% lower than it would be in a typical spring.
However, the fundamental reasons driving the current housing market are much different than they were in 2007. Homeowners are often financially stable and have large equity. Buyers acquire houses within their means rather than relying on riskier, exotic financial items as they did before the previous housing catastrophe. As the number of millennials entering the prime home buying age rises and a decade of underbuilding has left us with more than a million dwellings short of demand, competitiveness and overall demand have been resilient and will remain so in the coming years. Millions of stalled first-time buyers are waiting in the wings for the chance to purchase a house when and if the competition eventually eases.
A slowing price increase should be welcomed rather than feared in these circumstances. After all, because of these market dynamics, we have witnessed unsustainable price increases that are pricing more people out of homeownership.
First-time buyers are rapidly losing ground, attempting to cobble together a down payment big enough to compete with homeowners who have built up equity while also dealing with soaring rent rates that are chewing greater holes in their paychecks each month.
Mortgage rates, which have been around record lows for the previous two years, just surpassed 5%, raising the monthly payment on a typical house by over 20% in only three months and 38% higher than a year ago.
While this may seem to be adding insult to injury for house buyers who are already extending their budgets and yet losing out, there are early indicators that increasing rates are slowing the market. Inventory has just increased for the first time since August of last year, and if this trend continues, we may see a year-over-year increase by September. Furthermore, the yearly house value rise should peak this spring, and by next spring, it may be closer to 10% than 20%. Even while the double-digit house value rise is still quite high by historical standards, this would bring some relief to purchasers, particularly first-time buyers.
It will take years for the market to recover from its epidemic patterns. A panel of housing specialists recently forecast that inventory would not recover to pre-pandemic levels for another year or two when it considered extremely low.
As a result, when we see price rise begin to halt later this year, it is critical to acknowledge it for what it is: a stride toward health and a modest step toward alleviating our affordability dilemma.
Let’s get together and talk about your best options to buy, sell, or invest in Real Estate, call or text Today (210) 418-0067 – we will be happy to assist and guide you through the process.