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HomeRates, prices, and the market trajectory: Answers to the common questions.

Rates, prices, and the market trajectory: Answers to the common questions.

Think Frink Home Team December 07, 2022

 

Rates, prices, and the market trajectory: Answers to the common questions.

By: Scott Bradley Brixen (Blog.listreports.com)



As the housing market evolves on a national level, it’s difficult to keep up and people are overwhelmed by the sheer volume of news and the individual commentaries on what it all means. These days you’re probably hearing from curious and confused buyers and sellers quite a lot, so we thought we’d share some frequently asked questions and the answers to them.

Q: Why are mortgage rates so much higher?

A: One word: Inflation.

Inflation is currently running at a 40-year high. One of the two main jobs of the Federal Reserve is to control inflation, and they’re failing right now. As a result, the Fed has been hiking short-term interest rates at an unprecedented pace and is warning consumers and businesses to expect more “pain” until “the job is done.”

When the Fed lifts interest rates, it’s effectively raising the “cost of money.” This discourages people and businesses from borrowing money to buy things (like houses), and ultimately slows the economy down.

Keep in mind that the Fed doesn’t set mortgage rates. Other interest rates (bank account deposit rates, CDs, bonds, etc.) “build” off the Fed Funds Rate. Mortgage rates and the Fed Funds Rate can move in different directions in the short-term (days/weeks), but in the medium and long-term (months/years), they move together.

Q: When are home prices going to start falling?

A: Ummm, they already are.

Don’t be confused. When you read news stories saying that home prices were up 15% in August 2022, that’s compared to the prices in August 2021.

In many markets, prices are already lower than they were in June 2022. And while it’s totally normal for sale prices to be declining in the winter months, this is bigger than just seasonality. A correction is underway.

Q: Is it a bad time to sell?

A: Hardly. It’s still a fantastic time to sell.

Home prices may be below their June 2022 peaks, but they are still up by roughly 15% in the last 12 months and up by at least 30% since the onset of the pandemic. If you’ve owned your home for more than a couple of years, you are sitting on significant gains.

Don’t stress about “missing the peak.” Remember, the profits are only real when you sell the property and the cash is in the bank.

You just need to be realistic with your price and timing expectations. The days of ‘shooting for the moon’ with your list price are pretty much over, and homes are taking a bit longer to sell.

Q: Is it a bad time to buy?

A: Well yes, but things are getting better.

It can’t be both a great time to sell and an awesome time to buy at the same time.

Mortgage rates have more than doubled in the last year and home prices are up big. In combination, this means that the average homebuyer’s monthly mortgage bill is up 60–70% compared to a few years ago. So yes, many buyers are kicking themselves for not acting sooner.

That said, buyers are starting to regain some negotiating power. As demand has fallen, inventory levels and days on market are rising. Prices are declining month-on-month, and in some previously hot-hot-hot markets, prices are already down year-on-year.

Keep in mind that time is your investment friend. If you buy a house now, you can be pretty confident that in 10 years’ time the value will be significantly higher, even if the price declines in the short term. Remember:

“The best time to buy a home is always 5 years ago.”

Q: Should I just continue renting until home prices and interest rates come down?

A: That’s a decent argument, but…

…demand still exceeds supply in most markets. That suggests that prices aren’t likely to have a huge drop. And while most forecasters do expect that mortgage rates will start to decline in 2023, it’s unlikely that they’ll get back below 4%.

And, of course, rental rates are currently rising at a faster rate than home prices.

In the longer term, it’s almost always financially better to buy than rent. But personal circumstances play a huge role in the buy vs. rent decision. If you’re planning on moving cities in the next 1–2 years, or don’t want to deal with home maintenance, you may want to keep renting (and saving) for a while.


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