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From the time mortgage interest rates fell to their lowest in 2020 before bouncing up again, the property market has witnessed aggressive competition with housing prices rising steeply.
For-sale listings vanished; the low supply of housing stock pushed the price for numerous offers way above the asking price and most of them were all-cash.
The economic environment has not been favorable, particularly for first-time home buyers. They are unable to access the lowest mortgage rates on official records and are focused more on long-term appreciation.
High mortgage interest rates can significantly increase housing prices, however, can they lower demand for housing and help the buyer?
Will Housing Prices Ever Fall?
You are not the only one who wants to see the housing prices come down after remaining shockingly high for some time.
Home prices are projected to decelerate as 2022 passes although early signs have not indicated that way. According to CoreLogic’s Home Price Index, annual price appreciation jumped to 19.1% in the first month of the year, which is the highest increase seen in the last 45 years. Alvaro Moreira says they expect the increase in mortgage rates in January to ease price gains in the rest of the months.
The data provider expects January 2022 to record the highest value in the current boom of housing prices and the annual rate of change to diminish and fall back to a single-digit figure by August. January 2021 recorded an annual growth rate of 9.4% and CoreLogic expects the rate to fall to 3.8% in January 2023.
According to Frank Nothaft, CoreLogic’s chief economist, homebuyers have constantly offered prices up because of the low supply in the property industry. He adds that the increase in mortgage interest rates since January has additionally reduced the buyer’s ability to afford the house, and is projected to reduce price gains in the months that follow.
Rising Mortgage Interest Rates Can Be A Double-edged Sword
As mortgage interest rates go up, the lower affordability. It makes it much harder to buy a house and can reduce the number of buyers in the property markets. When there is reduced demand, there is little pressure exerted on housing prices.
The chief economist at First American, Mark Fleming, believes prices will ultimately relax whenever they go up. Increasing mortgage rates may be a headwind in 2022, however, we expect housing prices to moderate and the balance in the property market to increase as several buyers exit the market because of affordability and supply limitations as housing supply increases from new construction.
Mark Fleming, the chief economist at First American, expects high-interest rates to be a headwind in 2022, and the housing prices to moderate and add more balance to the market.
According to Census Bureau, as far as new housing construction is concerned, the residential constructions approvals and permits were recorded at a seasonally adjusted annual rate of 1.899 million in January. The number grew from 1.885 million in December and 1.883 million in January 2021.
For now, a seasonally adjusted rate of 1.638 million houses began constriction in January, a decrease from 1.708 million in December but an increase from 1.625 million the year before. High for-sale house inventory will play a big role in lowering home price growth.
The Need For Housing Inventory
High-interest rates are expected to remove some buyers from the market and lower demand for housing. Nonetheless, it is more efficient to unlock housing inventory to slow down the speed of home price increase.
The property market’s equilibrium stands at a 6-month supply of houses for sale. The market equilibrium goes beyond this level, the options greatly increase and it turns out to be a buyer’s market. Any lower offers are more valuable to the sellers. The National Associations of Realtors says the January housing inventory stood at 1.6 months long supply of houses for sale.
According to Fleming, we are undoubtedly operating well below a level of balance and an upsurge of housing inventory to 3-months’ supply is expected to decelerate the increase in housing prices. He adds that, since many homes for sale are old homes and not new construction, moderating price appreciation depends on that supply going up.
According to Fleming, we can expect housing inventory to come in when the spring season of buying houses starts but we cannot be certain the inventory will be sufficient.
Are You Prepared To Buy?
As we know, individuals who are lucky enough to present successful bids and buy a house will benefit from elevated inflation while their housing values improve their equity.
Admittedly, the current environment may make it hard to invest but we believe it is never the wrong time to buy if you can afford to buy.
We recommend that you confirm your eligibility, know the recent mortgage interest rates and determine the most ideal mortgage for you.