The US Housing Market & 6 month Review
We are getting to close to reaching half way through 2022 so now is a good time to review what happened in the first six months. We have previously written articles on growth in the US housing market in 2020 and 2021 but how about 2022 ? are we starting to see a slow down or is the growth still continuing ? Looking at recent articles on this years trends prices are not just increasing they have been surging in some States, some are quoting explosive growth. I think this might come as a surprise to some people as we have seen interest rates rise, very low inventory over the last 12 months and year on year price increases. The issue still seems to be the gap between supply and demand, the same trend continuing since 2021, many experts are predicting the prices will still continue to rise for the remainder of this year. Fannie Mae (Government sponsored body) predicts prices will move up in 2022 by 10.8%. Freddie Mac stated the US market lacks around 4 million homes to meet the country’s needs, the shortage is a result of a decade of insufficient homebuilders available for new home construction. Both the labor shortage and supply crisis are keeping construction from bouncing back. Key materials like lumber are more expensive after the pandemic and have cut into profit margins for builders, a shortage of available workers has also cramped housing projects as firms have struggled to rehire. With both trends putting pressure on builders, buyers will be stuck bidding on a small supply of homes for the next several months. While all of this seems bad for the Buyers its good news for the Sellers, homeowners are seeing more equity gains this year as compared to previous years, some U.S. Sellers achieved $60,000 in equity, according to a recent CoreLogic report. But the this level of growth could not be sustained in the long run, according to Reuters house price inflation will drop to 10%, half its current rate this year, and slow further over the next two years. Since the pandemic started we have seen nearly zero borrowing costs and a panic by Buyers to buy more properties, properties on average have risen by one-third from the beginning of the pandemic. The Federal Reserve have raised interest rates since March with more raises expected this year.The Federal Reserve raised its key interest rate by a cumulative 75 basis points since March, with more expected this year and next, pushing up the key 30-year fixed mortgage rate above 5% in April, its highest in more than a decade. The rise in home prices has been staggering, and we do expect a significant slowdown going forward, particularly in the wake of a near-doubling of mortgage rates,” said Brad Hunter, head of consultancy Hunter Housing Economics. Around 80 percent of the typical homes listed have seen the cost of financing increase by 50 percent compared to a year ago from a combination of the all-time high listing prices and higher interest rates according to Realtor.com While housing prices aren’t expected to drop this year, the increasing rise of prices should slow down. Many experts believe home values will increase at roughly half the rate (single-digit increases) we saw during the peak of 2021. The current median sale price of houses sold in the US in the first quarter of 2022 was $428,700 according to the St Louis Federal Reserve. Most economists though agree that the pace of rising prices can’t continue and will at worst level off or rise more slowly. So if prices are not forecasted to decline in 2023 but increase at a slower place what does that mean for investors. According to Fannie Mae year-on-year home inflation will drop to 4.4% in the second quarter of 2023 and end the year at 2.9%. So if If Fannie Mae’s predictions are correct, homebuyers are in for a mixed experience. It will looks like it wil be easier to find a home in the next two years but being able to afford it will be a different matter.
