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SHOW NOTES FOR EPISODE 634: HAS THE U.S. HOUSING MARKET FINALLY PEAKED?
This has been one of the hottest real estate markets in decades but there are finally signs that the market may be starting to cool. In today’s podcast, Bill shares insights and expert opinions on whether the market has finally peaked… or not!
Introduction
This has been one of the hottest real estate markets in decades! Buyer demand has stayed strong and home prices have risen dramatically, despite continued low inventory and rising rates. But there are signs that the market may be starting to cool.
Does that mean the market has peaked, and that we’re now going to see things normalize in the second half of 2022?
Several industry experts shared their opinions on the current state of the housing market and where they expect home prices, inventory, mortgage rates, and demand to land across the rest of 2022.
What kind of a housing market are we currently in?
Much of the U.S. has been in a strong sellers’ market over the past few years. The reason? Buyer demand has been high, with purchasers outnumbering sellers and a continued lack of housing supply to meet that demand.
A seller’s market is one in which sellers have the negotiating leverage because demand for housing is higher than the supply of available homes. According to Dennis Shirshikov, a strategist with Awning.com, a tech-enabled brokerage for real estate investors, “Low rates, a bull market, accessible refinancing, and the coronavirus lockdown have prompted people to move, purchase their first homes, buy vacation homes, and invest in properties.”
The housing market never truly ‘peaks.’–Vincent Chan, CEO, Christina real estate development and investment firm
Put another way, a seller’s market is one positioned in favor of existing homeowners instead of aspiring home buyers.
Another expert, Rogers Healy, owner and CEO of The Rogers Healy Companies in Dallas, explains that “We’ve been in a strong seller’s market for some time now because of a shift in the mindset of millennials regarding homeownership. Millennials used to be the enemy of real estate, but now they are the largest consumer, comprising 43% of buyers in today’s market. The decision millennials have collectively made to stray away from rental properties and own real estate has shifted the market completely.”
What does it mean for the housing market to “peak”?
When experts indicate the market has “peaked,” they mean that the highest growth rates are now behind us and the market is starting to cool off.
“Once annual home price growth starts trending downward, the market is said to have peaked. Since home prices display strong seasonal peaks and troughs, annual home price growth is used as a barometer for determining market ‘hotness,’” notes Nik Shah, CEO of Home.LLC in San Francisco.
Healy agrees.
“Typically, this means that prices have begun to level off. When the market peaks, it reaches an ultimate high — with prices and mortgage rates at an all-time high — before descending,” he adds.
Will the housing market peak in 2022?
Vincent Chan, CEO of real estate development and investment firm Christina, believes that the housing market never truly “peaks.”
“It only warms and cools — and sometimes booms — over time, alternating between a buyer’s and seller’s market. But it always keeps going up,” Chan continues. “Think about a hiking trail going up a mountain from the side: Sometimes it gets steeper, sometimes it dips back down, but it always keeps climbing.”
To illustrate Chan’s point, just look at median home prices over the last 50 years. Despite various housing crashes and corrections, prices have continued to rise over time:
Median home prices over the last 50 years:
- 1972 (Q1): $26,200
- 1982 (Q1): $69,600
- 1992 (Q1): $119,500
- 2002 (Q1): $188,700
- 2012 (Q1): $238,400
- 2022 (Q1): $428,700
Source: St. Louis Federal Reserve
Some believe the current seller’s market will continue to remain relatively strong.
Individuals continue to purchase their first homes, even at higher interest rates, and new homes are not being constructed nearly as quickly as is needed to meet the current demand.
But others feel strongly that we are approaching the peak of the seller’s market due to a greater number of price adjustments by home sellers recently, rising mortgage rates, and an increase in housing inventory.
Signs that the market may be cooling off
“Overall, there are multiple signs indicating a transition toward a market favoring buyers, which signifies that the housing market has already peaked,” Jason Gelios, a top Realtor in Southeast Michigan, says.
Nik Shah predicts that the housing sector will peak by the end of this month before beginning to cool down.
He goes on to say, “We can already see the signs of an impending slowdown. Inventory is rising rapidly, more homes are taking price reductions before finding a buyer, and there’s been a sharp fall in affordability. There has never been a bigger gap between what the median homeowner can afford to pay for a home and what the median home costs.”
Agents agree the market could be softening
Consider the results of a recent HomeLight survey, in which real estate agents were polled about the state of the housing market:
- 94% of agents believe it’s still a seller’s market
- 44% say bidding wars are on the decline
- 34% say price reductions are becoming more common
- 33% of agents indicate inventory is rising in their market
Of course, the situation buyers will face varies widely from one market to the next. Some areas could be cooling off more rapidly, while others may stay hot for years to come.
If you’re wondering what to expect in your local housing market, connect with a Realtor or real estate agent who can share their expertise and walk you through your home buying options.
What’s coming next for the housing market?
The pros offer a range of different predictions about where the real estate market could end up in 2022.
Inventory will likely remain tight
John Hunt, principal, and chief analyst for Atlanta-based MarketNsight, says, “We forecast that housing inventory will remain heavily constrained, especially with rising mortgage rates. If you are a prospective seller, even if you could find a home to purchase, you won’t want to swap your current 3% mortgage for a 5% mortgage. Therefore, demand will continue to outpace our ability to supply.”
Because we are still early in the work-from-home movement, you can expect to see more tech workers moving to remote locations, with some even living in their vacation homes.
Dennis Shirshikov states that “While new inventory will become available, it won’t be nearly quick enough. Most developments in good areas are oversold and have even stopped accepting people on their waiting list at this time. Mortgage rates will also rise, possibly 2% to 4% higher than today, and banks will likely tighten lending standards further.”
“But,” he continues, “we should see mortgage rates moderating and the Fed backing off its rate hike posture toward the end of the year. Prices should moderate across 2022, going up 10% to 15% before moving to a normal 4% to 6% appreciation in 2023.”
Rising mortgage rates could work in favor of remaining buyers
Jason Gelios thinks we’ll see housing values continue to stabilize, less competitive offers per home on the market, and sellers realizing they have less negotiating power with buyers.
“Overall, the second half of 2022 will reflect a lower demand for housing because of the increase in mortgage rates,” he says. “However, this is when we will see first-time buyers entering the market to have a chance at purchasing a home.”
“Fortunately, we will see an increase in inventory over the rest of the year, but the bad news is that mortgage rates are slated to rise possibly as high as 7% by the end of 2022,” he adds.
Demand from Millennials should remain strong
Others anticipate a housing market that will remain strong over the next six months and into the foreseeable future.
Vincent Chan says that “Demand will remain robust thanks to millennials, although mortgage rates will continue to creep up and prices will stay bullish because home appreciation is still outpacing the stock market.”
Remember that spring represents the peak months of the real estate market.
That’s why Rogers Healy says, “I anticipate, once fall and winter come around, we might see more of a fluctuation in prices, demand, inventory, and mortgage rates. The number of people moving will slow down, and housing supply will remain unstable.” Consequently, demand and prices will jump.”
Your next steps
No one can say for sure how the housing market will trend in the second half of 2022. How high will mortgage rates go? How much will buyer demand slow down? How many new units will hit the market?
As always, that’s why it’s tough to time the market as a buyer. Rather than waiting for a housing market peak and hoping prices will fall, focus on your own situation. Find out how much you can afford at today’s mortgage rates and decide whether buying now makes sense for you.
If you’re ready to move forward, connect with a good mortgage broker who can walk you through your options and help you find the right price point for your needs.
References:
https://themortgagereports.com/92359/housing-market-peak-2022
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