The real estate market is going through some rapid changes. Despite more homes for sale and rising interest rates (which should cool demand), prices continue to trend upward. These trends might give potential buyers pause, but, for many reasons, it remains a good time to purchase a home.
Real Estate Market Update: Summer 2022
Prices Still Going Up
One of the most important factors for homebuyers, as well as industry professionals like real estate agents and mortgage officers, is pricing. Home values have been a major topic over the past two years, as skyrocketing values have created challenges, especially for first-time homebuyers.
While there are signs that things will cool, home prices continue upward. Redfin, one of the best sources for real-estate information, reports that the median U.S. sale price is just over $430,000. At the beginning of 2022, it was hoped that prices would begin to cool; there was actually a slight dip around January. But prices soared again, jumping from around $376,000 in January to their current median of $430,695.
Inventory Starting to Look “Normal”
One of the main causes for high prices (although certainly not the only cause) was low inventory. There simply have not been enough houses to meet the high demand, causing competion for each house and higher prices for each listing.
Judging by current numbers, the total inventory of U.S. homes is starting to grow. Before the pandemic, there were roughly 1 million listings in the United States according to the Federal Reserve Bank of St. Louis. That number dropped declined to roughly 376,000 in February of 2022. Now that number has increased to over 619,000.
But it’s still low. In the previous three Junes before the pandemic (2017, ’18, and ’19), there were roughly 1.3 million. We’ve not even half that number.
So there is a long stretch ahead for inventory. But with the nation and the industry moving past COVID, buyers ca expect that more homes will be built and more sellers place their homes on the market.
All of this should result in lighter, or at least cooling, home prices.
Interest Rates Climbing
Interest rates are complex. The specific interest rate on your exact mortgage is determined by many factors, including the loan itself, your financial background, and rates set by the Financial Reserve.
Interest rates were at historic lows, but they are now progressing upward. Information from Freddie Mac shows that he average interest on a 30-year fixed rate loan was 5.7% on June 30th. Roughly a year ago, the rate was below 3%.
The most-recent rate was actually a decline from a week ago. On June 23rd, the average 30-year fixed-rate loan had an interest of 5.81%. Whether this is a blip or the start of a downward trend is not yet known.
Property Remains Popular Investment
Despite all of these changes, it’s clear that a purchasing a home is still a popular choice. A Gallup survey recently showed that real estate is by far the most popular investment; 43% of respondents said it’s the best longterm investment, outpacing stocks (24%), gold (15%), savings accounts (9%), and bonds (4%).
It remains a stable investment, one that may not skyrocket in value like a hot stock, but also won’t plummet.
What Does the Real Estate Market Mean to You?
Homeownership Remains Important, Don’t Try to Time the Market
With higher prices and rising interest rates, you might assume that it’s not a great time to purchase. You may think it’s better to wait, let prices come down, and purchase a property later.
Timing the market, however, rarely pays off. It’s better to focus on saving a downpayment, having your finances in order, and making a purchase when the time is right for you. This is the advice we would give whether the market is hot or cold, whether interest rates are high or low, and whether inventory is numerous or scarce. Focus on yourself first, the overall market second.
Future Refinancing Always Possible
Home prices, it seems safe to predict, will likely not decline. They may steady, but a decline in prices is all but impossible. However, interest rates could go up or down in the next few years or the next few months.
Let’s assume you purchase a home now with a 30-year interest rate of 5.7%, which is basically the average right now. In five years, if interest rates go up, you will be glad you didn’t wait. If interest rates go down, it’s always possible to refinance into a lower rate.
A Low Interest Rate is Critical
Because of all the market factors, it’s more important than ever to get a low interest rate. In today’s real estate market, you should shop around for the best possible rate on your mortgage to lower your costs as much as possible. You should also takes steps to improve your credit, lower your debt load, and save for a downpayment, which can all lower your interest rate.
Between shopping rates and taking proactive steps, you could significantly lower your overall rate.
Let’s say you purchase a property using a 30-year fixed-rate loan of $500,000 with an interest of 5.5%. (For simplicity, we’ll just gloss over total price and downpayment.) At this rate, your monthly P&I payment would be $2,839, which means an annual total of $34,068. (You can use our mortgage calculator to determine how an interest rate would impact your loan.
But if the interest rate is reduced to 4.5%, the monthly payment drops to $2,533, which means an annual cost of $30,396. This would reduce your annual cost by $3,672. If you kept the loan to completion, the total savings over 30 years would be over $110,000.
A one-percent drop is unlikely, but it shows how reducing the interest rate can make such a profound difference to your total costs.
Homeownership is still a wonderful investment, and you are never stuck with the mortgage that you secure in today’s market. By enhancing your profile as a borrower, you can realize significant savings, which is all the more important int today’s real estate market.
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