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The talk of a housing bubble in the coming year seems to be at a fever pitch as rising mortgage rates continue to slow down an overheated real estate market. Over the past two years, home prices have appreciated at an unsustainable pace causing many to ask: are things just slowing down, or is a crash coming?

To answer this question, there are two things we want to understand. The first is the reality of the shift in today’s housing market. And the second is what experts are saying about home prices in the coming year.

The Reality of the Shift in Today’s Housing Market

The reality is we’re seeing an inflection point in housing supply and demand. According to realtor.com, active listings have increased more than 26% over last year, while showings from the latest ShowingTime Showing Index have decreased almost 17% from last year (see graph below). This is an inflection point for housing because, over the past two years, we’ve seen a massive amount of demand (showings) and not enough homes available for sale for the number of people that wanted to buy. That caused the market frenzy.

Today, supply and demand look very different, and the market is slowing down from the pace we’ve seen. This offers proof of the sudden slowdown so many people are feeling.

Is the Real Estate Market Slowing Down, or Is This a Housing Bubble? | MyKCM

What Experts Are Saying About Home Prices in the Coming Year

Right now, most experts are forecasting home price appreciation in 2023, but at a much slower pace than the last two years. The average of the six forecasters below is for national home prices to appreciate by 2.5% in the coming year. Only one of the six is calling for home price depreciation.

Is the Real Estate Market Slowing Down, or Is This a Housing Bubble? | MyKCM

When we look at the shift taking place along with what experts are saying, we can conclude the national real estate market is slowing down but is not a bubble getting ready to burst. This isn’t to say that a few overheated markets won’t experience home price depreciation, but there isn’t a case to be made for a national housing bubble.

Bottom Line

The real estate market is slowing down, and that’s causing many to fear we’re in a housing bubble. What we’ve experienced in the housing market over the past two years were historic levels of demand and constrained supply. That led to homes going up in value at a record pace. While some overheated markets may experience price depreciation in the short term, according to experts, the national real estate market will appreciate in the coming year.

The top three concerns in the housing market right now are mortgage rates, home prices, and affordability.

This is a look at the Freddie Mac 30-year fixed rate going all the way back to January of 2022. It shows is how much mortgage rates really rose from the beginning of the year all the way into mid- to late-Junish, and then since then, you can see that there’s been a lot of volatility or fluctuation in mortgage rates over the past few months. So, why is that? Inflation is the enemy of long-term interest rates. We know that the Federal Reserve doesn’t call mortgage rates, but they’re certainly making moves right now to ease inflation, and when that happens, mortgage rates tend to response. So, we’re watching all of the different economic factors that impact mortgage rates and how that’s playing out over time.  https://freddiemac.gcs-web.com/node/25841/pdf http://www.freddiemac.com/pmms/

This year the housing market has truly been defined by rising mortgage rates. Taking a look at the Freddie Mac 30-year fixed rate, we can clearly see the jump earlier this year from 3.22% to over 5%. There has been a tremendous amount of volatility in mortgage rates over the past few months. This is because inflation is the enemy of long-term interest rates. The Federal Reserve is making moves to ease inflation, and when that happens mortgage rates respond.

“What are the projections for going forward?” Everyone wants to know: where are mortgage rates headed? Well, if we look at these projections, from Freddie Mac, Fannie Mae, MBA and NAR, these are the latest data we have as of August of this year, and if we average all of their projections together over the next four quarters, what we can see mortgage rates are projected to essentially stabilize over the next year.  https://www.freddiemac.com/research/forecast/20220720-quarterly-forecast-market-slowdown-will-continue-high-rates-and-prices-exacerbate https://www.fanniemae.com/media/44466/displayhttps://www.mba.org/docs/default-source/research-and-forecasts/forecasts/mortgage-finance-forecast-aug-2022.pdf https://cdn.nar.realtor/sites/default/files/documents/forecast-q3-2022-us-economic-outlook-07-27-2022.pdf

The general consensus is that the Federal Reserve is going to get inflation under control. If that’s the case, then mortgage rates will stabilize to about 5.3%, and then dipping below 5% in the third quarter of next year.

After the end-of-summer lull, and as mortgage rates stabilize, we may see a return of buyers and a relatively strong fall housing market.  Lisa Sturtevant, Housing Economist

Home prices are appreciating, but at a slower, more moderate rate than we have seen recently.

I don’t think national housing prices will decline in a meaningful way... but there will be some price declines across the country.  Mark Zandi, Chief Economist, Moody’s Analytics

Nationally, home prices will continue to rise due to buyer demand and low inventory.

On average, nationally, we project that home prices will continue to rise. We’re seeing that in expert projections, but at the same time, we also know that there are some overheated markets throughout the country, especially out on the West Coast where there will likely be price declines, and you’re probably seeing this in some of your markets right now. And so, I want to bring context to this to show how home-price appreciation is still expected going forward based on today’s buyer demand and low inventory, but what does that mean in the grand scheme of things? Depreciation is slowing not depreciating, and that’s where deceleration comes into play. This is percent year-over-year of home price increases for 2022 so far, and this is data from CoreLogic. Latest data was just released, and so, what you can see here is that year-over-year, January, February, and March, home prices were still accelerating at a pretty rapid pace, record-breaking home-price appreciation at the beginning of this year, but what has happened since then? We’ve come off that high of 20 percent year over-year home-price appreciation, and it’s starting to cool. And that’s what you can see in May, June, July. That’s the deceleration in prices. So, what this means is year-over year, July, let’s say July of this year compared to July of last year, home prices were still 15.8 percent higher on the national average compared to last year, but that’s a slower pace than that high of over 20 percent that we saw at the beginning of the year, end of last year. So, the pace of appreciation is slowing. That’s deceleration. It’s not depreciation where we would have negative price growth.  https://www.corelogic.com/intelligence/u-s-home-price-insights-september-2022/

Home prices are slowing – not depreciating, and that’s where deceleration comes into play. We saw record-breaking home-price appreciation at the beginning of this year, and we have recently seen (and will continue to see) a deceleration of home prices. The pace of appreciation is slowing. That’s deceleration. It’s not depreciation – where we would have negative price growth. We will see continued appreciation at a slower pace. This gives buyers a little bit more negotiating power.

Annual home price growth slowed for the third consecutive month in July but remained elevated at 15.8%. As 30-year, fixed-rate mortgages neared 6% this summer, some prospective homebuyers pulled back, helping ease overheated and unsustainable price growth... Looking ahead, CoreLogic expects to see a more balanced housing market, with year-over-year appreciation slowing to 3.8% by July 2023. CoreLogic, Latest Home Price Insights Report

The past two years have been an anomaly. The price growth over the past year was unsustainable.

Looking ahead, CoreLogic expects to see a more balanced housing market with year-over-year appreciation slowing to 3.8 percent by July of 2023. So, by July of next year, CoreLogic is projecting that homes will still be appreciating in value, but at a much slower pace. That’s that deceleration continuing, and this is much more in line with what we’re seeing from the home price expectations survey and what they are saying for continued price growth, higher this year and a little bit more towards a normal range next year and beyond.   https://www.fanniemae.com/research-and-insights/forecast/forecast-monthly-archive  https://www.freddiemac.com/research/forecast?page=0  https://www.nar.realtor/research-and-statistics  https://zelmanandassociates.com (subscription necessary) https://pulsenomics.com/surveys/#home-price-expectations https://www.mba.org/news-and-research/forecasts-and-commentary/mortgage-finance-forecast-archives

Many experts raised their home price forecast this year. Most likely because of the continued low inventory levels and the increasing mortgage rates.

We bring this graph to you often to show you the latest home-price projections for the year, and the average of all seven forecasts that we follow is showing 11.3 percent annual appreciation for 2022. Now, what we have to remember is that the majority of that home-price appreciation happened earlier this year. It happened at the beginning of the year, and we’re seeing that softening, but experts still projecting by the end of the year, 11.3 percent home-price appreciation for 2022. So, why is that? Well, that’s because inventory is still historically low.   https://www.fanniemae.com/media/44461/displayhttps://www.freddiemac.com/research/forecast/20220720-quarterly-forecast-market-slowdown-will-continue-high-rates-and-prices-exacerbate https://cdn.nar.realtor/sites/default/files/documents/forecast-q3-2022-us-economic-outlook-07-27-2022.pdf https://www.corelogic.com/intelligence/find-stories/corelogic-hpi-posted-record-year-over-year-growth-in-2021/ https://pulsenomics.com/surveys/#home-price-expectations https://www.zelmanassociates.com/ (subscription required) https://www.mba.org/docs/default-source/research-and-forecasts/forecasts/mortgage-finance-forecast-aug-2022.pdf

We are looking at 11.3% annual home price appreciation for 2022, keeping in mind a lot of that already happened at the beginning of this year.

This data from Calculated Risk, this helps us compare where we are today versus where we were over the past few years. Inventory is 26.3 percent higher than it was the week ending September 2nd of last year, so year-over-year, comparison for the last week of August and into the first couple days of September, 26.3 percent more inventory. So, that is creating more opportunities for buyers. It has helped with the softening of home prices, for sure, but compared to the same week in 2020, inventory is still down 5.4 percent, and compared to 2019, prior to the pandemic, inventory is still historically low, down 42.2 percent from where we were that same week in 2019. So, that’s what’s continuing to drive upward pressure on home prices. Inventory is still low. We still have buyers in the market. Yes, we’ve seen a softening, a cooling, a slowing. But home prices are projected to continue rising primarily based on this inventory data as well.   https://www.calculatedriskblog.com/2022/09/housing-september-5th-update-inventory.html

Inventory is 26.3% higher than it was last year, which creates more opportunities for buyers. However, compared to the same week in 2020, inventory is down 5.4%, and down 42.2% from the same week in 2019. Historically, inventory is still low, and that’s what’s continuing to drive an upward pressure on home prices.

The housing affordability index released by NAR every month. Housing affordability right now is lower than it’s been going all the way back to the early ‘90s. This is a look at the — going back to 1990 and housing affordability. The high of that market, the housing affordability index read 197. Right now, we’re at 98.5. 100 reading of the housing affordability index is an even reading. That means the average individual, the average household, in this country can afford 100 percent of the average mortgage payment. You make enough money to afford an average home, and that is even affordability, and we’ve gotten a lot of cover from interest rates over the last several years and seen great affordability. And right now, the average household can afford 98.5 percent of the average mortgage payment, so less affordable. You could maybe even say unaffordable. You may see that some places, and that’s where that comes from, but certainly not an apocalyptic scenario by any means in housing affordability. Now, that’s based upon three things. It’s based on the prices of homes. It’s based on interest rates, and it’s based on wages. That’s how they come up with the housing affordability index.  https://www.nar.realtor/blogs/economists-outlook/housing-affordability-conditions-fade-as-mortgage-rates-push-monthly-payments-higher-in-june-2022

Housing affordability is lower than it’s been since the early 1990s. The National Association of Realtors® Housing Affordability Index, is based on 3 things: home prices, interest rates, and wages – where the higher the bar, the more affordable a home. A reading of 100 is an even reading – where the average household can afford 100% of the average mortgage payment. As right now, the average household can afford 98.5% of the average mortgage payment – so, unaffordable.

Compared to one year ago, the monthly mortgage payment rose from $1,265 to $1,944 - an increase of 53.7%. There is no doubt that homes are less affordable right now.    https://www.nar.realtor/blogs/economists-outlook/housing-affordability-conditions-fade-as-mortgage-rates-push-monthly-payments-higher-in-june-2022 https://cdn.nar.realtor/sites/default/files/documents/hai-06-2022-housing-affordability-index-2022-08-11.pdf

Compared to one year ago, the monthly mortgage payment rose from $1,265 to $1,944 – an increase of 53.7%. There is no doubt that homes are less affordable right now.

Another thing that we want to look at when we start to break down affordability and understand that is we want to look at what is the average mortgage payment or income committed to a mortgage payment, and right now, that sits at 25.4 percent. That assumes a 30-year fixed mortgage rate with a 20 percent down payment on a median-priced home with median income. So, go back to the affordability equation. The median income, the median-priced home, somebody is dedicating 25.4 percent of their income to a housing payment. Why is that important? Well, if you look at this, 25 percent is typically what is recommended. We’re slightly above that. Again, I’m going to go back to not an apocalyptic scenario, but above that, and so, if you hear that word “affordability” coming out, you can give context to that and what that means.  Purchased data from NAR https://www.nar.realtor/blogs/economists-outlook/housing-affordability-conditions-fade-as-mortgage-rates-push-monthly-payments-higher-in-june-2022

Another thing that we want to look at when we start to break down affordability is the average mortgage payment, or income committed to a mortgage payment, which sits at 25.4%. This assumes a 30-year fixed mortgage rate with a 20% down payment on a median-priced home with median income. 25.4% of income is dedicated to a housing payment, where 25% is typically what is recommended.

If we further break this down, if you look at median household income versus qualifying income, here’s what becomes very, very clear is this is not the same across the country. If you go look to the West, the qualifying income, what you need to make to buy a home, is in the West, certainly, significantly higher than what the median income is. If you read this, in the West are less affordable. In the South, they’re neck and neck. In the Midwest, median income is higher than the qualifying income.   https://www.nar.realtor/blogs/economists-outlook/housing-affordability-conditions-fade-as-mortgage-rates-push-monthly-payments-higher-in-june-2022

Taking a look at median household income versus qualifying income – what you need to make to buy a home, is pretty even for the South which is following the national trend.

3 things buyers can do today:  Expand search area and criteria  Explore alternative financing options  Look for grants, gift funds, etc. @ downpaymentresource.com

To combat the current housing affordability right now, buyers can expand their search area and criteria – maybe consider looking a little bit further out of their desired area. Or explore alternative financing options with several different lenders. Finally, buyers can look for grants at sources like DownPaymentResource.com.

Housing is traditionally one of the first sectors to slow as the economy shifts but is also one of the first to rebound.  Ali Wolf, Chief Economist, Zonda

There’s no denying the housing market is undergoing a shift this season as buyer demand slows and the number of homes for sale grows. But that shift actually gives you some unique benefits when you sell. Here’s a look at the key opportunities you have if you list your house this fall.

Opportunity #1: You Have More Options for Your Move

One of the biggest stories today is the growing supply of homes for sale. Housing inventory has been increasing since the start of the year, primarily because higher mortgage rates helped cool off the peak frenzy of buyer demand. But what you may not realize is, that actually could benefit you.

If you’re selling your house to make a move, it means you’ll have more options for your own home search. That gives you an even better chance to find a home that checks all of your boxes. So, if you’ve put off selling because you were worried about being able to find somewhere to go, know your options have improved.

Opportunity #2: The Number of Homes on the Market Is Still Low

Just remember, while data shows the number of homes for sale has increased this year, housing supply is still firmly in sellers’ market territory. To be in a balanced market where there are enough homes available to meet the pace of buyer demand, there would need to be a six months’ supply of homes. According to the latest report from the National Association of Realtors (NAR), in July, there was only a 3.3 months’ supply.

While you’ll have more options for your own home search, inventory is still low, and that means your home will still be in demand if you price it right. That’s why the most recent data from NAR also shows the average home sold in July still saw multiple offers and sold in as little as 14 days.

Opportunity #3: Your Equity Has Grown by Record Amounts

The home price appreciation the market saw over the past few years has likely given your equity (and your net worth) a considerable boost. Danielle Hale, Chief Economist at realtor.comexplains:

“Home owners trying to decide if now is the time to list their home for sale are still in a good position in many markets across the country as a decade of rising home prices gives them a substantial equity cushion . . .” 

If you’ve been holding off on selling because you’re worried about how rising prices will impact your next home search, rest assured your equity can help. It may be just what you need to cover a large portion (if not all) of the down payment on your next home.

Bottom Line

If you’re thinking about selling your house this season, connect with a REALTOR® so you have the expert insights you need to make the best possible move today.

According to the U.S. Census Bureau, this year, builders are on pace to complete more than a million new homes in this country. If you’ve had trouble finding a home to buy over the past year, it may be time to work with your trusted agent to consider a new build and the incentives that come with it. Here’s why.

The Supply of Newly Built Homes Is Rising

When looking for a home, you can choose between existing homes (those that are already built and previously owned) and newly constructed ones. While the inventory of existing homes is on the rise today, it’s still in tight supply, meaning it can be challenging to find just the right one.

The inventory of newly built homes, however, is also rising. And with more options available than there have been in years, a new home may be just the answer you’re looking for. The graph below shows just how much the supply of newly built homes has grown this year.

New Homes May Have the Incentives You’re Looking for Today | MyKCM

And here’s the thing – builders are also keeping a close eye on current market trends. With mortgage rates rising this year and, as a result, buyer demand softening, builders are slowing their pace of new construction. That’s because they learned their lesson in the housing crash of 2008 and want to avoid over-building and having too much inventory in their pipeline.

Basically, while there are more newly built homes on the market today than there have been in years, many builders want to sell their current inventory before adding much more – and that’s where you can really benefit. Today, builders may be more willing to work with buyers. According to a recent survey83% of builders have reduced their prices over the last three months.

What That Means for You

The current supply of newly built homes for sale coupled with the fact that data shows the majority of builders are doing price reductions are both great news for you. It means you may have more options and possibly some much-needed relief if you consider newly built homes in your search.

Bottom Line

If you’re ready to buy, it may be time to look for a newly built home. Learn what’s available in our area and what incentives these builders are offering.

One of the top stories in recent real estate headlines was the intensity and frequency of bidding wars. With so many buyers looking to purchase a home and so few of them available for sale, fiercely competitive bidding wars became the norm during the pandemic – and it drove home prices up. If you tried to buy a house over the past two years, you probably experienced this firsthand and may have been outbid on several homes along the way.

But here’s the news you’ve been waiting for: data shows clear signs bidding wars are easing this year.

According to the National Association of Realtors (NAR), the average number of offers on recently sold homes has declined considerably over the past few months (see graph below):

Buyers: You May Face Less Competition as Bidding Wars Ease | MyKCM

The graph shows homes were seeing a high of around five offers earlier this year. But the latest data shows that average was down to just shy of three offers per recently sold home. This shift is happening largely because rising mortgage rates moderated buyer demand and slowed home sales, resulting in a growing supply of homes on the market. Essentially, more choices for buyers.

What This Means for You

If you put your home search on pause because you were outbid last year or because you didn’t want to deal with the peak intensity of bidding wars, you can breathe a welcome sigh of relief. While it’s still a sellers’ market, an uptick in inventory gives you a window of opportunity to jump back in. You may still be competing with some buyers, but it likely won’t be anything like it was just a few short months ago.

Bottom Line

If you put your plans on pause because of intense bidding wars in recent years, it may be time to kick off your home search. Today, bidding wars are easing and that may mean less competition for you as a buyer.

Whether or not you owned a home in 2008, you likely remember the housing crash that took place back then. And news about an economic slowdown happening today may bring all those concerns back to the surface. While those feelings are understandable, data can help reassure you the situation today is nothing like it was in 2008.

One of the key reasons why the market won’t crash this time is the current undersupply of inventory. Housing supply comes from three key places:

For the market to crash, you’d have to make a case for an oversupply of inventory headed to the market, and the numbers just don’t support that. So, here’s a deeper look at where inventory is coming from today to help prove why the housing market isn’t headed for a crash.

Current Homeowners Putting Their Homes Up for Sale

Even though housing supply is increasing this year, there’s still a limited number of existing homes available. The graph below helps illustrate this point. Based on the latest weekly data, inventory is up 27.8% compared to the same week last year (shown in blue). But compared to the same week in 2019 (shown in the larger red bar), it’s still down by 42.6%.

Why Today’s Housing Inventory Proves the Market Isn’t Headed for a Crash | MyKCM

So, what does this mean? Inventory is still historically low. There simply aren’t enough homes on the market to cause prices to crash. There would need to be a flood of people getting ready to sell their houses in order to tip the scales toward a buyers’ market. And that level of activity simply isn’t there.

Newly Built Homes Coming onto the Market

There’s also a lot of talk about what’s happening with newly built homes today, and that may make you wonder if we’re overbuilding. But home builders are actually slowing down their production right now. Ali Wolf, Chief Economist at Zonda, notes:

“It has become a very competitive market for builders where they are trying to offload any standing inventory.”

To avoid repeating the overbuilding that happened leading up to the housing crisis, builders are reacting to higher mortgage rates and softening buyer demand by slowing down their work. It’s a sign they’re being intentional about not overbuilding homes like they did during the bubble.

And according to the latest data from the U.S. Census, at today’s current pace, we’re headed to build a seasonally adjusted annual rate of about 1.4 million homes this year. While this will add more inventory to the market, it’s not on pace to create an oversupply because builders today are more cautious than the last time when they built more homes than the market could absorb.

Distressed Properties (Short Sales or Foreclosures)

The last place inventory can come from is distressed properties, including short sales and foreclosures. Back in the housing crisis, there was a flood of foreclosures due to lending standards that allowed many people to secure a home loan they couldn’t truly afford. Today, lending standards are much tighter, resulting in more qualified buyers and far fewer foreclosures. The graph below uses data from ATTOM Data Solutions on properties with foreclosure filings to help paint the picture of how things have changed since the crash:

Why Today’s Housing Inventory Proves the Market Isn’t Headed for a Crash | MyKCM

This graph shows how in the time around the housing crash there were over one million foreclosure filings per year. As lending standards tightened since then, the activity started to decline. And in 2020 and 2021, the forbearance program was a further aid to help prevent a repeat of the wave of foreclosures we saw back around 2008.

That program was a game changer, giving homeowners options for things like loan deferrals and modifications they didn’t have before. And data on the success of that program shows four out of every five homeowners coming out of forbearance are either paid in full or have worked out a repayment plan to avoid foreclosure. These are a few of the biggest reasons there won’t be a wave of foreclosures coming to the market.

Bottom Line

Although housing supply is growing this year, the market certainly isn’t anywhere near the inventory levels that would cause prices to drop significantly. That’s why inventory tells us the housing market won’t crash.

If you put off your home search at any point over the past two years, you may want to consider picking it back up based on today’s housing market conditions. Recent data shows the supply of homes for sale is increasing, giving buyers like you additional options.

But it’s important to keep in mind that while inventory is improving, it’s still a sellers’ market. And that means you need to be prepared as you set out on your home search. Here are three tips for buying the home of your dreams today.

1. Understand How Mortgage Rates Impact Your Homebuying Power

Mortgage rates have increased significantly this year, and over the past few weeks, they’ve been fluctuating quite a bit. It’s important to stay up to date on what’s happening with rates and understand how they can impact your purchasing power when you’re thinking of buying a home. The chart below can help.

Let’s say your budget allows for a monthly mortgage payment in the $2,100-$2,200 range. The green in the chart indicates a payment within or below that range, while the red is a payment that exceeds it.

3 Tips for Buying a Home Today | MyKCM

As the chart shows, even a small change in mortgage rates can have a big impact on your monthly payments. If rates rise, you could exceed your budget unless you pursue a lower home loan amount. If rates fall, your purchasing power may increase, which could give you additional options for your search.

2. Be Open to Exploring Different Options During Your Search

The supply of homes for sale is improving, which gives you more homes to choose from. But historically, supply is still low. That means as you search for homes, if you still don’t find something that meets your needs, it may be worth expanding your search.

recent article from the Washington Post highlights a few things buyers can consider today. It encourages opening yourself up to more areas. For example, if there’s a location you’ve previously ruled out (like a particular town, for example) it may be worth taking another look.

And if you’re able to, opening your search up to include other housing types, like newly built homes, condominiums, or townhomes can further increase your pool of options. Even as the inventory of homes for sale improves today, finding ways to cast a wider net during your search could help you find a hidden gem.

3. Work with a Local Real Estate Professional for Expert Guidance

Ultimately, you need to be prepared when you set out to buy a home. Jeff Ostrowski, Senior Mortgage Reporter for Bankrate, explains:

“Taking the leap to homeownership can provide a feeling of pride while boosting your long-term financial outlook, if you go in well-prepared and with your eyes open.”

No matter where you’re at in your homeownership journey, the best way to make sure you’re set up for success is to work with a real estate professional. If you’re just starting your search, a real estate professional can help you understand your local market and search for available homes. And when it’s time to make an offer, they’ll be an expert advisor and negotiator to help yours stand out above the rest.

Bottom Line

Strategically planning your home search by understanding today’s mortgage rates, casting a wide net, and building a team of experts can be the keys to finding the home of your dreams. Make sure you have expert advice each step of the way.

If you’re wondering if home prices are going to come down due to the cooldown in the housing market or a potential recession, here’s what you need to know. Not only are experts forecasting home prices will continue to appreciate nationwide this year, but most of them also actually increased their projections for home price appreciation from their original 2022 forecasts (shown in green in the chart below):

Experts Increase 2022 Home Price Projections | MyKCM

As the chart shows, most sources adjusted up, and now call for more appreciation in 2022 than they originally projected this January. But why are experts so confident the housing market will see ongoing appreciation? It’s because of supply and demand in most markets. As Bankrate says:

“After all, supplies of homes for sale remain near record lows. And while a jump in mortgage rates has dampened demand somewhat, demand still outpaces supply, thanks to a combination of little new construction and strong household formation by large numbers of millennials.”

Knowing that experts forecast home prices will continue to appreciate in most markets and that they’ve actually increased their original projections for this year should help you answer the question: will home prices fall? According to the latest forecasts, experts are confident prices will continue to appreciate this year, although at a more moderate rate than they did in 2021.

Bottom Line

If you’re worried home prices are going to decline, rest assured many experts raised their forecasts to say they’ll continue to appreciate in most markets this year.

With all the headlines and buzz in the media, some consumers believe the market is in a housing bubble. As the housing market shifts, you may be wondering what’ll happen next. It’s only natural for concerns to creep in that it could be a repeat of what took place in 2008. The good news is, there’s concrete data to show why this is nothing like the last time.

There’s a Shortage of Homes on the Market Today, Not a Surplus

The supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued price appreciation.

For historical context, there were too many homes for sale during the housing crisis (many of which were short sales and foreclosures), and that caused prices to tumble. Today, supply is growing, but there’s still a shortage of inventory available.

The graph below uses data from the National Association of Realtors (NAR) to show how this time compares to the crash. Today, unsold inventory sits at just a 3.0-months’ supply at the current sales pace.

3 Graphs To Show This Isn’t a Housing Bubble | MyKCM

One of the reasons inventory is still low is because of sustained underbuilding. When you couple that with ongoing buyer demand as millennials age into their peak homebuying years, it continues to put upward pressure on home prices. That limited supply compared to buyer demand is why experts forecast home prices won’t fall this time.

Mortgage Standards Were Much More Relaxed During the Crash

During the lead-up to the housing crisis, it was much easier to get a home loan than it is today. The graph below showcases data on the Mortgage Credit Availability Index (MCAI) from the Mortgage Bankers Association (MBA). The higher the number, the easier it is to get a mortgage.

3 Graphs To Show This Isn’t a Housing Bubble | MyKCM

Running up to 2006, banks were creating artificial demand by lowering lending standards and making it easy for just about anyone to qualify for a home loan or refinance their current home. Back then, lending institutions took on much greater risk in both the person and the mortgage products offered. That led to mass defaults, foreclosures, and falling prices.

Today, things are different, and purchasers face much higher standards from mortgage companies. Mark Fleming, Chief Economist at First Americansays:

Credit standards tightened in recent months due to increasing economic uncertainty and monetary policy tightening.” 

Stricter standards, like there are today, help prevent a risk of a rash of foreclosures like there was last time.

The Foreclosure Volume Is Nothing Like It Was During the Crash

The most obvious difference is the number of homeowners that were facing foreclosure after the housing bubble burst. Foreclosure activity has been on the way down since the crash because buyers today are more qualified and less likely to default on their loans. The graph below uses data from ATTOM Data Solutions to help tell the story:

3 Graphs To Show This Isn’t a Housing Bubble | MyKCM

In addition, homeowners today are equity rich, not tapped out. In the run-up to the housing bubble, some homeowners were using their homes as personal ATMs. Many immediately withdrew their equity once it built up. When home values began to fall, some homeowners found themselves in a negative equity situation where the amount they owed on their mortgage was greater than the value of their home. Some of those households decided to walk away from their homes, and that led to a wave of distressed property listings (foreclosures and short sales), which sold at considerable discounts that lowered the value of other homes in the area.

Today, prices have risen nicely over the last few years, and that’s given homeowners an equity boost. According to Black Knight:

In total, mortgage holders gained $2.8 trillion in tappable equity over the past 12 months – a 34% increase that equates to more than $207,000 in equity available per borrower. . . .”

With the average home equity now standing at $207,000, homeowners are in a completely different position this time.

Bottom Line

If you’re worried we’re making the same mistakes that led to the housing crash, the graphs above should help alleviate your concerns. Concrete data and expert insights clearly show why this is nothing like the last time.

Whether you’re a potential homebuyerseller, or both, you probably want to know: will home prices fall this year? Let’s break down what’s happening with home prices, where experts say they’re headed, and why this matters for your homeownership goals.

Last Year’s Rapid Home Price Growth Wasn’t the Norm

In 2021, home prices appreciated quickly. One reason why is that record-low mortgage rates motivated more buyers to enter the market. As a result, there were more people looking to make a purchase than there were homes available for sale. That led to competitive bidding wars which drove prices up. CoreLogic helps explain how unusual last year’s appreciation was:

Price appreciation averaged 15% for the full year of 2021, up from the 2020 full year average of 6%.”

In other words, the pace of appreciation in 2021 far surpassed the 6% the market saw in 2020. And even that appreciation was greater than the pre-pandemic norm which was typically around 3.8%. This goes to show, 2021 was an anomaly in the housing market spurred by more buyers than homes for sale.

Home Price Appreciation Moderates Today

This year, home price appreciation is slowing (or decelerating) from the feverish pace the market saw over the past two years. According to the latest forecasts, experts say on average, nationwide, prices will still appreciate by roughly 10% in 2022 (see graph below):

What Does the Rest of the Year Hold for Home Prices? | MyKCM

Why do all of these experts agree prices will continue to rise? It’s simple. Even though housing supply is growing today, it’s still low overall thanks to several factors, including a long period of underbuilding homes. And experts say that’s going to help keep upward pressure on home prices this year. Additionally, since mortgage rates are higher this year than they were last year, buyer demand has slowed.

As the market undergoes this change, it’s true price appreciation this year won’t match the feverish pace in 2021. But the rapid appreciation the market saw last year wasn’t sustainable anyway.

What Does That Mean for You?

Today, the market is beginning to move back toward pre-pandemic levels. But even the forecast for 10% home price growth in 2022 is well beyond the 3.8% that’s more typical for a normal market.

So, despite what you may have heard, experts say home prices won’t fall in most markets. They’ll just appreciate more moderately.

If you’re worried the house you’re trying to sell or the home you want to buy will decrease in value, you should know experts aren’t calling for depreciation in most markets, just deceleration. That means your home should still grow in value, just not as fast as it did last year.

Bottom Line

If you’re thinking of making a move, you shouldn’t wait for prices to fall. Experts say nationally, prices will continue to appreciate this year, just at a more moderate pace.

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