May 12, 2022
As the Federal Reserve works to tackle elevated inflation through higher interest rates, would-be homebuyers will likely feel the strain of more expensive borrowing costs. Meanwhile, the housing market is likely to return to more normal pre-COVID conditions with fewer transactions and home prices increasing at a slower rate.
Those were several of the takeaways from Lawrence Yun, chief economist of the National Association of Realtors, who spoke to Realtors last week about how current economic conditions are affecting the housing market.
“Mortgages now compared to just a few months ago are costing more money for home buyers,” Yun said. “For a median-priced home, the price difference is $300 to $400 more per month, which is a hefty toll for a working family.”
Although mortgage rates may have already adjusted to future moves from the Federal Reserve, the recent spike in rates will impact housing budgets, even without additional increases.
“The mortgage rate has already responded to what the Fed is likely to do,” Yun said.
Yun calculates homes are 55% more expensive today when accounting for the cost of higher prices and interest rates compared to one year ago. For a $400,000 loan with a 3% interest rate, a buyer would have paid $1,686 per month last year for principal and interest. That increases to $2,606 per month this year with a $480,000 loan at a 5.1% interest rate.
In response, the number of cash buyers — who are unaffected by the higher rates — is at the highest level since the 2010-2012 period.
Because the additional costs will squeeze out some buyers, Yun is predicting the higher mortgage rates will slow the housing market. In fact, past data show that home sales do tend to decline when mortgage rates rise, but the decrease is not usually dramatic.
Yun expects unit sales to fall 9% in 2022 and home price increases to slow to 8%, down from the nearly 17% appreciation in 2021. Yun predicts home prices will grow 4% in 2023.
“This means that we may be dealing with unit sales activity down to pre-COVID days,” Yun said. “We had a huge surge; now we’re retreating back to pre-COVID days. Prices are still high; they are not retreating, … Then by 2023 sometime with job creation, home sales may return to positive territory.”
In fact, the current jobs situation will likely help the housing market.
“Even if there’s a recession, it looks like job creation will continue, which is important for the housing market,” Yun said.
In fact, Utah has more jobs today than before the pandemic — up 5.3% and the best-performing job market in the country.
For those who are worried about a housing bubble, another positive aspect is the fact that mortgage balances are not rising, even with increasing home prices.
“We’re clearly not in an excessive debt situation,” Yun said.
The housing shortage, which is not going away anytime soon, will also support home prices.
“After the over-production [of homes during the mid-2000s], we had under-production for almost 15 straight years,” Yun said. “So, the cumulative effect of under-production for 15 straight years is falling inventory, falling inventory, falling inventory.”
As America’s population rises, he said we need more housing construction to make sure opportunities remain available to those who want to become homeowners.
“Some of the demand will taper off just because we are in a rising interest rate environment, but the price increases certainly have been justified by the excessive demand and [lack of] supply,” Yun said.
To learn more about housing market conditions in your area, contact a local Realtor.
April 21, 2022
Even with sharp increases in mortgage rates, Utah home prices keep going up as properties continue to sell at a rapid pace.
In fact, the median price of Utah homes sold set a record in March, hitting a median of $525,000 for the first time. The median is 29% higher than it was at the same time last year, according to March data from the Utah Association of Realtors.
That equates to a price increase of $119,000 and marks the 120th consecutive month of statewide year-over-year price gains.
The county with the highest median price is Summit at $1,295,000 followed by Wasatch and Grand at $955,000 and $700,000 respectively. The most affordable counties in Utah are Daggett at $70,000, Carbon at $178,000 and Emery at $186,500.
Nationally, the median sales price is $375,300, marking 121 consecutive months of year-over-year increases. This is the longest-running streak on record.
Counties in Utah with the highest price increases were Cache (up 46.9%), Box Elder (up 41.2%) and Washington (up 31.9%). (Only counties with at least 50 sales were ranked.)
“Home prices have consistently moved upward as supply remains tight,” said Lawrence Yun, chief economist of the National Association of Realtors. “However, sellers should not expect the easy-profit gains and should look for multiple offers to fade as demand continues to subside,” he said.
In Utah, the time it took to sell a house remained low in March, taking an average of 21 days, down from 27 days last year. Homes in the $300,001-to-$500,000 category sold the fastest at 17 days on average.
While homes sold quickly, there were fewer sales than last year due to higher prices, rising interest rates and the continued inadequacy of housing inventory.
Utah Realtors sold 4,054 properties during March, down 10.5% or 475 houses from last year at the same time. Pending sales were down about 11%. Pending sales are properties that are under contract but are not yet finalized.
But not all areas saw a sales decline. Counties with the greatest sales increases were Wasatch (up 13.3%), Iron (up 11.2%) and Cache (up 7.6%).
“The housing market is starting to feel the impact of sharply rising mortgage rates and higher inflation taking a hit on purchasing power,” Yun said. “Still, homes are selling rapidly, and home price gains remain in the double-digits.”
In Utah, affordability fell about 21% from last year. A typical Utah family makes about 81% of what it needs to afford the median-priced home.
Yet, even with the affordability challenges, the low supply and high demand are keeping competition high. Buyers are also using cash to cope with the situation.
“With rising mortgage rates, cash sales made up a larger fraction of transactions, climbing to the highest share since 2014,” Yun said.
The number of homes for sale in Utah remained at near-record lows in March. There were 3,731 properties in active status at the end of the month, which is about the same as March 2021. If no new inventory came on the market, it would take 0.8 months to sell all the homes, which represents a seller’s market.
Moving into the months ahead, the National Association of Realtors expects U.S. sales to decline 10% while price growth slows to 5%.
To learn more about real estate conditions in your own area, contact a Utah Realtor.
April 7, 2022
If you’re thinking about selling your home, now may be the perfect time. In fact, a new study says the ideal time to list a home is only a few days away.
The week of April 10-16 will be the best time to list a home in 2022, says Realtor.com, which has named the week “Listapalooza.” The company, which analyzed recent market conditions across the U.S., says sellers who list during this week will take advantage of strong demand, high asking prices, quick home sales, less competition from other sellers and fewer price reductions.
“Every year, to help sellers better navigate the spring buying season, we take a look at recent market conditions to determine the optimal week to put a home on the market,” said Realtor.com Chief Economist Danielle Hale in a press release about the report. “And that perfect moment is just [days] away for 2022 sellers, with data indicating that home prices and demand are rising earlier than in a typical year.”
The Realtor.com team looked at seasonal trends in 2018, 2019 and 2021 data, and scored each week based on favorability toward sellers. (2020 was excluded from the analysis because of the pandemic.) They looked at competition from other sellers, listing prices, days on market, likelihood of price reductions and homebuyer demand based on Realtor.com property views.
The researchers say they expect 2022 to behave similarly to the market in 2021; however, the effect of rising mortgage rates and increased supply from builders could cause sellers to lose some leverage later in the year.
“Preparation is especially important this year, since market dynamics could shift quickly along with factors like rising mortgage rates, inflation and the ongoing conflict in Ukraine,” Hale said.
Here are some of the benefits of listing April 10-16:
- Above-average demand: In 2021, this week got 29% more views per listing than the average week in 2021 and 18.6% more interest than the average home listed in 2018-2021.
- Above-average prices: Historically, homes reached prices 1.4% (+$5,000) higher than the average week throughout the year and 10.9% (+$39,000) higher than the start of the year.
- Faster market pace: Because of the above-average demand, homes sell more quickly. Historically, homes sold this week sell 13.2% faster than the average week. In 2021, homes sold six days faster than the year’s average.
- Fewer sellers: In 2021, there were 12.9% fewer sellers with houses on the market compared to the average week in 2021.
- Fewer price reductions: Typically, there are 13.8% fewer price reductions during this week compared to the average week.
Later this year, there may also be some shifting market dynamics, including rising interest rates. With the increased cost to borrow, buyers may have less flexibility to afford the higher home prices and may leave the market, leading to a slower rate of price increases.
As builders help fill the housing gap with newly constructed homes, buyers may have more housing choices later in the year, and consequently, sellers will have more competition — although supply is still expected to remain low relative to demand.
Even though conditions are favorable to sellers right now, Realtor.com warns that it still takes work to sell a home.
“We all know that homes are selling lightning-fast right now. But that doesn’t necessarily mean your house will sell itself,” said Rachel Stults, managing editor at Realtor.com. “Before you list your home this spring — or any other time this year — make sure you’ve taken steps to get ready, including cleaning and decluttering, getting cost estimates on repairs you might need to make, and talking to agents to see who would be a good fit for your needs. No matter when you decide to list, whipping your home into shape beforehand will help you sell faster and for more money.”
Find a local Realtor who can help you stage your home, analyze market conditions and help you through the process.
