Will the housing market cool down by the fall? Here’s What Experts Predict – Forbes Advisor
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One of the peculiar outcrops of the pandemic is today’s hot housing market. Housing supply was already low before Covid-19, but it was further hampered as closures took place and people began to seek new housing, motivated by a multitude of reasons – from the desire to leave populated cities to better home offices or just fear of running out (FOMO).
Steps taken by the Federal Reserve last year to keep financial markets liquid and ensure mortgage rates stay low continued. But low mortgage rates are pale compared to the surge in house prices over the past year.
Nationwide home prices, including distressed sales, rose 17.2% in June 2021 from June 2020, a record high, according to the latest CoreLogic report. And while there have certainly been hot sellers’ markets in the past, none quite compare to the current market where over 50% of homes for sale are above asking price.
“We’ve been tracking house prices for over 20 years and we’ve never seen anything like it,” says Frank Nothaft, chief economist at CoreLogic.
Historically, fall has paved the way for less competition and better deals as kids return to school and vacations overtake hours. But the pandemic changed that trend last year, and many cities are seeing double-digit percentage increases in house prices.
To get a taste of what potential buyers and sellers can expect as we head into midsummer, Forbes Advisor spoke with housing experts across the country to get their forecast on home prices, rates and the appetite of buyers in the coming months.
Are house prices slowing down?
While a full celebration may be too early, potential buyers can breathe a little easier, based on the forecast of real estate experts. Prices are starting to slow in some areas as more inventory becomes available for single family homes.
According to the National Association of Realtors, unsold homes rose 3.3% to 1.25 million from May to June of this year. While the increase in inventory may not be enough to meet demand, it could give buyers hope and possibly buy leverage with more options to choose from.
“Mortgage applications have fallen to their lowest level in 18 months and we are seeing real buyer fatigue in the market,” says Tamar Asken, real estate agent at Avenue 8 in Los Angeles. “Sellers are responding to declining buyer enthusiasm with price cuts. “
In Northern Virginia, home prices rose 10.9% year-on-year in June 2021 compared to the same period last year. The more affordable areas of Northern Virginia, like Fairfax City, saw a larger increase in median year-over-year home price gains (15.1%) compared to their more expensive neighboring areas like Falls Church, which saw a smaller increase of just 3.2%.
“The Northern Virginia market has slowed significantly over the past month, with fewer offers and longer market days,” said Ryan McLaughlin, CEO of the Northern Virginia Association of Realtors (NVAR). “While this is a normal trend in a typical year, given the intensity of the spring market, it’s surprising. This may well be due to an increase in travel as pandemic restrictions have eased. “
Cape Cod, part of the “Zoom Cities” (areas that became popular as more people were able to work from home), the housing frenzy that took hold last year, is starting to see a slight reprieve compared to growing demand.
Last year, the buying spree of the onset of the pandemic reduced Cape Cod’s inventory from about 2,300 homes to 230 homes as towns closed and buyers flocked to the coastal town, Ken said Hager, Managing Director of Gibson Sotheby’s International Realty on Cape Cod. But Hager says the market is starting to normalize.
“In the future, we may see price increases continue on Cape Cod as well as across the country, but at a much slower pace. And prices are likely to retreat from panic buying highs, ”Hager said.
However, for some communities, the pandemic has given them a much needed boost from the belated price appreciation that still remains from the latest housing crisis. Wisconsin, for example, took longer to recover from the 2008 crash, when foreclosure claims hit a record high of 21.5%.
“In many of our neighborhoods, it was not until 2018 to return to these pre-crisis values. Since then we’ve seen double digit appreciation, but a lot of it is a mean reversion, ”said Rick Ruvin, Falk Ruvin Gallagher Team Senior Partner at Keller Williams in Milwaukee. “Locally, we anticipate a playground evening and a return to offers with the typical risks of control and financing. “
Buyers’ behavior becomes less risky
Similar to how the pandemic sparked a disinfectant and toilet paper buying spree, consumers also flocked to the real estate market last year. As the demand for homes increased, interested buyers did everything they could to outbid the competition.
This has caused all kinds of weird and possibly reckless behavior, including buyers waiving the contingencies of the sales contract meant to protect them and their down payments, which can run into the thousands of dollars. Some buyers used their retirement savings, while others got loans so they could appear as all-cash buyers.
But that irresistible approach could be on the wane, Miller says. Whether it’s because stocks start to rise or house prices flatten out, some buyers are realizing that they may be putting too much on the line and “take back the strong position once they’ve passed a market.” contract, ”Miller says.
Even Asken, which is based in the notoriously expensive and competitive Los Angeles market, says she notices more buyers are now proceeding with caution.
“I don’t see the same level of desperation and urgency that we saw a few months ago,” Asken says. “After big price increases, a lot of properties don’t seem like such a good deal anymore.
Mortgage rates and home price forecasts for the fall
While history indicates that fall is the time when you can get a better deal on real estate, the past year has thwarted all trends with huge growth in home sales recorded over the season. fall. So are we likely to see a repeat later this year?
Ralph B. McLaughlin, chief economist and senior vice president of analysis at Haus, Inc., said demand would return to its usual downturn in the fall, noting the recent expansion in inventories and falling prices. house prices.
“I think it’s quite likely that price growth will slow down through the end of the year, as they’re already slowing down from their June peak,” McLaughlin said. “We expect price growth to moderate to mid-high by December.”
However, McLaughlin added that he doesn’t expect stocks to fully recover until next spring.
Likewise, Nothaft was cautiously optimistic, pointing out that inventories are on an upward trajectory thanks in part to falling lumber prices and the construction of new sawmills in the United States. But Nothaft also agrees that the supply of housing falls far short of the demand.
Nothaft also expects mortgage rates to rise as fall and the new year approach. Mortgage rates for 30-year and 15-year fixed mortgages are at record averages since last summer, hovering between the average 3% and 2%. These low rates have only encouraged an already fiery real estate market, so higher rates should help contain demand.
“Mortgage rates are at an all time low and at an all time high, but they won’t stay that way forever,” says Nothaft. “During 2022 we will see a gradual increase, probably about half a percentage point more than in 2021. On the margin, this will moderate demand.”
Buyers shouldn’t wait to prepare
The best course of action for buyers on the sidelines is to start getting your finances in order now. If you wait to do this until a deal is made, it will be too late.
Now is a good time to work on your credit score – a higher score means lower rates, which translates to lower monthly payments. You can get free weekly credit reports from all three credit bureaus until April 20, 2022. After that, you are entitled to one free credit report from each bureau per year.
Keep in mind that as home prices rise, your down payment requirement also increases. What was a 5% down payment on a home last year is much higher this year as home prices continue to climb, so keep saving and explore down payment assistance (PAD) options.
Not only do you have to save for a down payment, but there are also closing costs and reserve money that you will need in the bank as well. If you need help navigating the home buying process, a good place to start is with a housing advisor. The US Department of Housing and Urban Development (HUD) has a directory of free, HUD-approved housing counselors on their website.