Are you wondering if we’re in a housing bubble and it’s about to pop?
There’s been one time in this country where homes lost significant value, and that was back in 2008. Back then, we saw homes lose value really for two reasons. First, loose lending standards. Second, cash-out refinances. Some people applied for loans they didn’t have to qualify for and then took out equity. That’s when homes lost value.
The bigger question is, what’s ahead? The Federal Reserve started off the month of May by raising the federal funds rate. They want to take the heat off the high inflation, which includes real estate home prices. According to Kiplinger’s latest forecast, the rise in the Treasury’s 10-year yield rate will push up mortgage rates from the current average of 5.4% for 30-year fixed-rate loans to near 6%.
Home prices are going up. Interest rates are going up. Here’s some perspective. The most recent updated home price forecast from seven respected forecasters believes, on average, 9% appreciation in 2022. The chart [below] falls between eight and 10%. The year started off with about 5% appreciation, and it’s risen slowly every month since.
Interest rates are expected to continue rising in 2022 – Rates have gone from 3.3% this time last year to 5.25% (as of this writing). Four hikes have been taken in 2022 so far, and more are expected. Both sellers and buyers are impacted by rising rates. Affordability erodes as rates and mortgage payments rise.
Inventory is low, yet buyers seem to be fatigued – In a survey by Fannie Mae, 73% of buyers do not think it’s a great time to buy. Part of that is because the inventory is so low. Sellers who put their home on the market get it sold quickly. For now, anyway.
Negative economic conditions exacerbate the situation – Housing costs have surpassed wage growth and inflation by more than double over the past decade. Today’s high inflation rate only furthers the problem. Residential real estate is a hedge against inflation as long as affordability doesn’t deteriorate further.
We’re in a unique situation right now where home prices have grown in double digits the past two years, so most people have sufficient equity. Inventory of homes for sale is at very low levels, so homes for sale are in high demand. It’s still a “perfect storm” for home sellers. How long will it stay that way? Probably not much longer. If you’re even thinking about moving and cashing out your equity, all signs point to now.
If you want to leverage the gains you’ve made from homeownership, please contact me for a professional assessment of your home’s value.
