In July, the federal government announced another rate hike of 0.75%. So, if you’re looking to apply for a new mortgage in 2022, expect your mortgage payments to increase significantly. This will undoubtedly affect the real estate housing market in some way, but so far it hasn’t gone as predicted.
Over the past two years, the hot real estate housing market has cooled slightly. However, prices have not followed the expected trend.
Will the housing market collapse soon or will it prevail? Here’s what the experts say.
Mortgage rates likely to continue rising
Fixed interest rates on mortgages have already doubled this year. Economists say further increases could depend on several factors, including:
- Reports that strong employment is causing interest rates to surge
- Interest rates rise as inflation shows no signs of peaking
- The prospect of the Fed bringing forward rate hikes may keep them stable
This last theory is based on the observation that the current rise in mortgage rates means interest rates will fall as the economy weakens.
Savvy realtors expect the federal government to raise interest rates at least three times this year to fight inflation. For this reason, most homeowners opt for variable rate mortgages in anticipation of eventual interest rate declines.
Home price gains will slow
House prices remain high due to limited inventory at the moment. However, this trend may not last long, according to forecasts for the housing market.
Ultimately, homeowners will have to lower prices to compensate for buyer affordability issues. Leading economists predict house prices will continue to rise until around August before leveling off.
It is important to note that the very high prices of the last few years will affect what buyers and sellers see as the norm in the years to come. It will far exceed
Sellers who wanted to take advantage of higher prices may decide to hold off until the market improves. This further limits housing supply.
Suburban prices still outpace growth in more built-up neighborhoods as the work-from-home trend continues. Millennials are a major driver of this trend as they prefer family-friendly neighborhoods.
Economists say cautious buyers are cooling the market, leading to a more balanced scenario.
demand should cool
Uncertainty about the country’s economic future means growing hesitation among homebuyers.
As the cost of living soars, these buyers lose the will to buy a home. They are hesitant to shoulder a large mortgage on top of their living expenses.
Therefore, we expect a significant slowdown in previously hot regions where demand, inventory turns and prices have surged to extraordinary levels over the past two years.
Mortgage defaults rise
The borrower was protected from foreclosure for over two years, but now things are back to normal and the outstanding payments are catching up with them.
Banks may now take action against defaulters, so normal foreclosure activity should resume soon. Already, foreclosures have increased him 30% in the first half of 2022.
In recent years, distressed homeowners have been able to market and sell their properties to avoid foreclosure. is much more difficult to do.
Foreclosures increase the most in areas with a small pool of buyers, especially where homeowners have FHA and VA loans.
stricter financing requirements
The looming risk of foreclosures and rising interest rates means banks will tighten their lending policies. Mortgage availability will start declining in January 2022, and this downward trend should continue.
That’s because when there’s no money in the market, there’s less money to lend. This leads to a natural preference for lenders to favor more qualified buyers.
Unfortunately, this reduces the pool of potential homebuyers. Fewer buyers means more people looking for rental properties.
Rent continues to soar
Across the country, housing shortages and rising rental demand are pushing home prices to all-time highs. In some locations, rental prices have increased by 20%.
Higher rents are bound to affect the cost of living and further increase inflation.
Building costs have also risen tremendously. This means developers have little incentive to build affordable housing, which could ease this situation.
Likewise, local planning commissions will not encourage further growth in already congested areas.
Investors turn to real estate housing market
With inflation at its highest in 40 years, investors are turning to real estate, food and energy. Traditionally, the stock prices of these commodities rise during periods of high inflation, providing a hedge against inflation.
By investing in assets that appreciate in value, investors realize higher returns in this type of economic environment. If they invest in bonds now, they must lose money.
So far, the rise in real estate prices has been good for these astute investors, making real estate one of the best places to invest money at the moment. Additionally, high demand and rising rents are in the hands of real estate investors.
For now, these wealthy and creditworthy buyers could help keep property prices at their current high levels longer.
Stay on top of real estate market trends
Even the most knowledgeable people seem to have a hard time predicting what will happen next.
Whether you’re part of a REIT, thinking about when to buy a home, involved in real estate investing, or just curious, interesting times await. If you want to see the scenario play out, check out our blog for all the latest real estate housing market news.