Over the last two years, the rate of home prices appreciated at a dramatic pace. While that led to incredible equity gains for homeowners, it has also caused some buyers to wonder if home prices will fall.
It is important to know the housing market is not a bubble about to burst, and home price growth is supported by strong market fundamentals.
It is important to explore what caused home prices to rise so much recently.
Home Prices in Recent Years
The graph below uses the latest data from CoreLogic to illustrate the rise in home prices over the past year and a half. The gray bars represent the dramatic increase in the rate of home price appreciation in 2021. The blue bars show home prices are still rising in 2022, but not as quickly:
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All-Transactions House Price Index for Connecticut
You might be asking: why did home prices climb so much last year?
There were more buyers than there were homes for sale. That imbalance put upward pressure on home prices because demand was extremely high, and supply was record low.
Where Experts Say Prices Will Go from Here
While housing inventory is increasing and buyer demand is softening today, there is still a shortage of homes available for sale.
Mark Fleming, Chief Economist at First American, explains:
“. . .we’re still well below normal levels of inventory and that’s why even with the pullback in demand, we still see house prices appreciating. While there is more inventory, it’s still not enough.”
As a result, experts are projecting a more moderate rate of home price appreciation this year, which means home prices will continue rising, but at a slower pace. That does not mean prices are going to fall.
Selma Hepp, Deputy Chief Economist at CoreLogic, says:
“The current home price growth rate is unsustainable, and higher mortgage rates coupled with more inventory will lead to slower home price growth but unlikely declines in home prices.”
In other words, even with higher mortgage rates, moderating buyer demand, and more homes for sale, experts say home price appreciation will slow, but prices won’t decline.
If you are planning to buy a home, that means you should not wait for home prices to drop to make your purchase. Instead, buying today means you can get ahead of future price increases, and benefit from the rise in prices in the form of home equity.
Housing Inventory Predictions for 2022
Home prices might expand, however options may as well, according to some economists.
The Realtor.com inventory forecast made a sharp change in course from the beginning of the year to now, going from just a 0.3% rise in inventory to their current prediction of a 15% jump in the for-sale housing stock.
Should You Buy a Home Now or Wait?
Buying a house—in any market—is a highly personal decision. Because homes represent the largest single purchase most people will make in their lifetime, it is crucial to be in a solid financial position before diving in.
Use a mortgage calculator to find out how much your monthly housing costs will be based on your down payment and interest rate.
Predicting what might happen next year is not the best homebuying strategy. If you find a home you love in an area you love and it also fits your budget, go for it! However, if you make too many sacrifices just to get that home, you may end up with buyer’s remorse and an expensive albatross you must offload.
Tips for Buying in a Hot Housing Market
Start with a budget and make a pact with yourself to stick with it. Even with a slight uptick in the number of homes for sale, buyers are still facing steep prices and mortgage rates in the 6% range.
The scarcity mentality in the market has driven people to make snap decisions.
The problem is you can not return the house if you realize you overpaid or just bought a place you do not like. The seller’s costs can run up to 10% of the home’s sale price, so you could end up losing money putting it back on the market.
Tips for Selling in a Hot Housing Market
Meanwhile, the first step is to declutter, organize and clean, your home must be desirable to all buyers. You may not have cash on hand dedicated to renovations and repairs, but a little “sweat equity” can go a long way.
Even if your home is outdated, a clean space allows buyers to envision the potential of this is our new home!
Steve Schappert The Connecticut Real Estate Broker
Call and Text Steve Schappert 203-994-3950
Email Broker@CTREB.com
Truth
You are a concerned homebuyer or homeseller and you need to know what is happening in your housing market so you can make the most informed decisions possible.