On a macro level, the real estate market in America is somewhat predictable in the sense that it is cyclical. Housing prices do not rise forever and home prices do not stay at basement levels forever. Of course, there are exceptions. Some markets might never see price reductions, like the Bay Area. At the same time, some markets have been depressed for years and still are, like many Rust Belt communities. When you are in the midst of a market cycle, it is entirely unpredictable. It is very difficult to tell if you are at the peak of the market or if you are at the bottom of the dip. Markets can go higher than you would imagine, and they can go lower. Given that context, it is time for home buyers and homeowners to look at today’s market. Have we peaked or will this real estate run continue?

Real Estate Indicators for Home Buyers and Homeowners

While it is incredibly difficult to accurately predict the exact moment a market peaks, there are indicators of trends that can be expected. Knowing real estate trends is valuable for home buyers and homeowners. It can give you an indication of how favorable it is to get a mortgage at this time or to refinance your current mortgage. It can tell you if it is the right time to buy a house or if it is the right time to sell your home. What indicators should homeowners and home buyers be looking at? The team at Peoples Choice Mortgage is here to help …

Home Sales are Declining 

Home sales are a key indicator of the health of the real estate market; however, they do not paint the full picture. In spite of their limitations, home sales do provide important information for homeowners and home buyers. Currently, it appears as if home sales are declining sharply. In February, home sales dropped over 7 percent from January’s sales. That is a sharp decline, but that does not mean the market is reversing. 

Home buyers are closing on houses with less frequency than before. That is true. However, home sales in and of themselves do not serve as the sole indicator of market health. Home sales are a function of both supply and demand. If home sales are declining because home buyer demand is declining, then the idea that the housing market has peaked might have more validity. As is the case, it is important to look at other factors that impact demand, such as mortgage rates. 

Mortgage Rates are Increasing

A major reason for the red-hot real estate market has been mortgage rates, which reached all-time lows during the pandemic. These rates were incredible while they lasted, but mortgage rates have started to move higher. Last week, the Federal Reserve raised interest rates for the first time since 2018. Interest rate increases are viewed as necessary to combat inflation and the Federal Reserve is expected to make several more hikes this year. In turn, mortgage rates should continue to increase. The combination of rising mortgage rates and home prices will create a bad squeeze on home buyers, especially first-time home buyers. Even high home prices can be considered affordable if mortgage rates are low because monthly payments are still low. However, as rates increase with prices, so do monthly payments, which can price many out of the market. 

Home Inventory is Declining

If you look at only the number of home sales and mortgage rates, then it might be easy to believe that we have reached the peak of the market. These two pieces of information together can make a compelling argument that home buyer demand is declining. Nobody could be faulted for thinking that rising home prices and mortgage rates are souring home buyers. After all, how many first-time home buyers afford a mortgage if prices keep rising? However, the data regarding home inventory complicates this story. 

Housing inventories have reached ‘crisis levels’ and it is causing home prices to continue their rapid ascent. The truth is that we cannot accurately gauge buyer demand because home inventory is entirely too low. Even if home buyer demand is declining, inventory levels are so low that demand still far outpaces the supply of houses. As a result, home prices will continue to rise even as demand recedes. More and more might be priced out of the market, but for those who can still afford to buy, there will still be stiff competition over the few available houses. That is why many experts predict home prices to increase in nearly every market. 

Final Thoughts

Even as home sales cool off there is nothing on the horizon that appears capable of causing home prices to start declining. For now, it seems as if home values only go up, which means home buyers need to accept the new reality. It might not be viable to merely wait on the sidelines and hope for a market crash. No matter what happens with prices or mortgage rates, the lack of inventory means that a price reversal may never come. For first-time home buyers and others who are seeing themselves priced out, it means planning is more important than ever. Buying a house at today’s prices might be hard, but it is not impossible. It does take tenacity, foresight, and support. The support is key. Home buyers need the support of a true team of professionals – mortgage brokers, real estate agents, etc. – to guide them. 

If you want to buy a house, but do not know how you will make it happen in today’s market, contact us. Do not let despair take hold. Deals can be found and home buyers can get mortgages. It might take some effort, but we have the know-how. All you need is the desire to buy a house and the willingness to start today. If you can do that, then we can make your dream of buying a house a reality, if not today, then tomorrow.