The housing affordability crisis is here – with mortgage rates continuing to rise (See the lowest price you can qualify for here) simultaneously with housing prices. So – as part of ours series where we asked prominent economists and real estate experts about their entry into the housing market right now – we spoke with Nadia Evangeliu. She is a senior economist and chief forecaster at the National Association of Realtors (NAR), and focuses on local and regional market trends, including the impact of changing Demographic and migration patterns. She also specializes in research and analysis on local housing affordability conditions and solutions to increasing housing stock. Here are her thoughts on the current housing market.
The outlook is for mortgage rates to rise further
Mortgage rates for 30-year fixed loans hit around 6% in June, up from more than 3% a year ago, according to Bankrate data. The upside momentum will continue, but not at such a rapid pace, Evangeliou said: “I don’t expect to see the kind of strong gains the market did in March and April. It looks like like mortgage rates already priced in some of the impact of the upcoming Fed rate hike,” Evangelou said.
Some buyers may want to consider an ARM
Given the current market, Evangeliou said some buyers should consider getting an adjustable-rate mortgage instead of a fixed-rate mortgage. “If they plan to sell or refinance in the next 5 years, a 5/1 year ARM might make more sense as the ratio on these remains below 4.5%. So for an average-priced home, the monthly mortgage payment is about $300 less than the payment for a 30-year mortgage,” says Evangelou. You can view the lowest mortgage rates you can qualify for here.
There are signs that the market is cooling down
Both mortgage rates and rising home prices hurt the affordability of many buyers. “As a result, existing home sales have fallen over the past four months. I expect home sales to drop more in the coming months, especially after the summer months,” said Evangelou.
And buyers are being priced out of the market. However, not all homebuyers can afford these additional homes. According to Evangelou, buyers making $75,000 can buy about 25,000 fewer listings than they did in January.
Institutional buyers can increase competition for first-time buyers
With rising mortgage rates hurting affordability, more and more people rent, and due to low inventory, rents are soaring. “For institutional buyers, this is more profitable. However, a larger market presence of institutional buyers increases competition in the market for first-time homebuyers. Research has shown that institutional investors may be taking a significant portion of homes that would otherwise be sold to lower-income and first-time buyers,” Evanagelou said.
House prices will continue to rise but at a slower rate
“Due to a shortage of housing, home prices won’t fall in 2022. Keep in mind that when there’s a shortage of homes, home prices don’t fall, in fact, home prices rose about 15% in May, even though the mortgage rate was about approx. two Evangelou said.
Inventories are increasing
There are about 20,000 more homes for sale to buyers making $200,000. “Despite the promise of seeing more homes on the market, there is still a need for more entry-level homes,” Evangeliou said.