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As the spring housing market kicks off, you likely want to know what you can expect this season when it comes to buying or selling a house. While there are multiple factors causing some uncertainty, including the conflict overseas, rising inflation, and the first rate increase from the Federal Reserve in over three years — the housing market seems to be relatively immune.

Here’s a look at what experts say you can expect this spring.

1. Mortgage Rates Will Climb

Freddie Mac reports the 30-year fixed mortgage rate has increased by more than a full point in the past six months. And despite some mild fluctuation in recent weeks, experts believe rates will continue to edge up over the next 90 days. As Freddie Mac says:

“The Federal Reserve raising short-term rates and signaling further increases means mortgage rates should continue to rise over the course of the year.”

If you’re a first-time buyer or a seller thinking of moving to a home that better fits your needs, realize that waiting will likely mean you’ll pay a higher mortgage rate on your purchase. And that higher rate drives up your monthly payment and can really add up over the life of your loan.

2. Housing Inventory Will Increase

There may be some relief coming for buyers searching for a home to purchase. Realtor.com recently reported that the number of newly listed homes has grown for each of the last two months. Also, the National Association of Realtors (NAR) just announced the months’ supply of inventory increased for the first time in eight months. The inventory of existing homes usually grows every spring, and it seems, based on recent activity, the next 90 days could bring more listings to the market.

If you’re a buyer who has been frustrated with the limited supply of homes available for sale, it looks like you could find some relief this spring. However, be prepared to act quickly if you find the right home.

If you’re a seller, listing now instead of waiting for this additional competition to hit the market makes sense. Your leverage in any negotiation during the sale will be impacted as additional homes come to market.

3. Home Prices Will Rise

Prices are always determined by supply and demand. Though the number of homes entering the market is increasing, buyer demand remains very strong. As realtor.com explains in their most recent Housing Report:

“During the final two weeks of the month, more new sellers entered the market than during the same time last year. . . . However, with 5.8 million new homes missing from the market and millions of millennials at first-time buying ages, housing supply faces a long road to catching up with demand.”

What does that mean for you? With the demand for housing still outpacing supply, home prices will continue to appreciate. Many experts believe the level of appreciation will decelerate from the high double-digit levels we’ve seen over the last two years. That means prices will continue to climb, just at a more moderate pace. Most experts are predicting home prices will not depreciate.

Won’t Increasing Mortgage Rates Cause Home Prices To Fall?

While some people may believe a 1% increase in mortgage rates will impact demand so dramatically that home prices will have to fall, experts say otherwise. Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae, says:

“What I will caution against is making the inference that interest rates have a direct impact on house prices. That is not true.”

Freddie Mac studied the impact that mortgage rates increasing by at least 1% has had on home prices in the past. Here are the results of that study:

What You Can Expect from the Spring Housing Market | MyKCM

As the chart shows, mortgage rates jumped by at least 1% six times in the last thirty years. In each case, home values increased.

So again, if you’re a first-time buyer or a repeat buyer, waiting to buy likely means you’ll pay more for a home later in the year (as compared to its current value).

Bottom Line

There are three things that seem certain going into the spring housing market:

  1. Mortgage rates will continue to rise
  2. The selection of homes available for sale will modestly improve
  3. Home prices will continue to appreciate, just at a slightly slower pace

If you’re thinking of buying, act now before mortgage rates and home prices increase further. If you’re thinking of selling, your best bet may be to sell soon so you can beat the increase in competition that’s about to come to market.

In an annual Gallup poll, Americans chose real estate as the best long-term investment. And it’s not the first time it’s topped the list, either. Real estate has been on a winning streak for the past eight years, consistently gaining traction as the best long-term investment (see graph below):

Real Estate Voted the Best Investment Eight Years in a Row | MyKCM

If you’re thinking about purchasing a home this year, this poll should reassure you. Even when inflation is rising like it is today, Americans agree an investment like real estate truly shines.

Why Is Real Estate a Great Investment During Times of High Inflation?

With inflation reaching its highest level in 40 years, it’s more important than ever to understand the financial benefits of homeownership. Rising inflation means prices are increasing across the board. That includes goods, services, housing costs, and more. But when you purchase your home, you lock in your monthly housing payments, effectively shielding yourself from increasing housing payments. James Royal, Senior Wealth Management Reporter at Bankrate, explains it like this:

“A fixed-rate mortgage allows you to maintain the biggest portion of housing expenses at the same payment. Sure, property taxes will rise and other expenses may creep up, but your monthly housing payment remains the same.”

If you’re a renter, you don’t have that same benefit, and you aren’t protected from increases in your housing costs, especially rising rents.

History Shows During Inflationary Periods, Home Prices Rise as Well

As a homeowner, your house is an asset that typically increases in value over time, even during inflation. That‘s because, as prices rise, the value of your home does, too. And that makes buying a home a great hedge during periods of high inflation. Natalie Campisi, Advisor Staff for Forbes, notes:

“Tangible assets like real estate get more valuable over time, which makes buying a home a good way to spend your money during inflationary times.”

Housing truly is a strong investment, especially when inflation is high. When you lock in a mortgage payment, you’re shielded from housing cost increases, and you own an asset that typically gains value with time.

Real estate is one of the time-honored inflation hedges. It's a tangible asset, and those tend to hold their value when inflation reigns, unlike paper assets. More specifically, as prices rise, so do property values. Mark P. Cussen, Financial Writer, Investopedia

With homeownership you can lock in the cost today, and have an asset that increases in value over time, making it a great hedge against inflation.

Homeownership: A Hedge Against Inflation where home prices appreciate at a greater rate than inflation. 2021 at 18% appreciation and 6.8% inflation 2020 at 2021 at 9.2% appreciation and 1.4% inflation 2010s at 4.9% appreciation and 1.8% inflation 2000s at 2.3% appreciation and 2.6% inflation 1990 at 4% appreciation and 3% inflation 1980s at 5.5% appreciation and 5.6% inflation 1970s at 9.9% appreciation and 7.1% inflation https://cdn.nar.realtor/sites/default/files/documents/2021-11-12-residential-economic-issues-and-trends-lawrence-yun-presentation-slides-11-12-2021.pdf https://www.bls.gov/news.release/archives/cpi_01132021.pdf https://www.corelogic.com/intelligence/find-stories/home-prices-topple-expectations-surging-at-the-end-of-2020/

When looking at home price appreciation versus consumer price increases gong back to the 1970s, we can see how home price appreciation outpaces inflation. Of course, the 2000s was a fundamentally different housing market with an oversupply of homes and lower lending standards. Overall, we can see that buying a home today would not only lock in today’s costs and provide a hedge against inflation, but avoid the rising rental rates.

A fixed-rate mortgage allows you to maintain the biggest portion of housing expenses at the same payment. Sure, property taxes will rise and other expenses may creep up, but your monthly housing payment remains the same. That’s certainly not the case if you’re renting. James Royal, Senior Wealth Management Reporter, Bankrate

Rental prices are skyrocketing, and the forecasts project that not only will home values will continue rising, but so will mortgage rates.

Rent Increase Greater Than InflationMost Years looking at Rental Price Appreciation and Core Inflation Rate from 1973 – 2020 https://ipropertymanagement.com/research/average-rent-by-year https://www.usinflationcalculator.com/inflation/united-states-core-inflation-rates/

Rent increases have been greater than inflation in most years. That means it’s more expensive to rent over time.

For a $200,000 home at 3.5% interest rate today your monthly payment would be $898. However, in Q1 of 2023 when that same home will be $212,600, interest rates will be $3.8%, and now your monthly payment is $990. That’s a difference of $33,314 over the life of the 30-year mortgage. That’s staggering.

For a $200,000 home at 3.5% interest rate today your monthly payment would be $898. However, in Q1 of 2023 when that same home will be $212,600, interest rates will be $3.8%, and now your monthly payment is $990. That’s a difference of $33,314 over the life of the 30-year mortgage. That amount jumps to $66,625 for a $400,000 home.

For a $200,000 home at 3.5% interest rate today your monthly payment would be $898. However, in Q1 of 2023 when that same home will be $212,600, interest rates will be $3.8%, and now your monthly payment is $990. That’s a difference of $33,314 over the life of the 30-year mortgage. That amount jumps to $66,625 for a $400,000 home.

For a $200,000 home at 3.5% interest rate today your monthly payment would be $898. However, in Q1 of 2023 when that same home will be $212,600, interest rates will be $3.8%, and now your monthly payment is $990. That’s a difference of $33,314 over the life of the 30-year mortgage. That amount jumps to $66,625 for a $400,000 home. That’s staggering.

Homeowners are shielded from mounting rental prices because their cost is fixed, regardless of what’s happening in the market. . . . Tangible assets like real estate get more valuable over time, which makes buying a home a good way to spend your money during inflationary times. Natalie Campisi, Advisor Staff, Forbes

Tangible assets like real estate get more valuable over time making buying a home a good way to spend your money during inflationary times.

Every quarter, Pulsenomics surveys a distinguished panel of over 100 economists, investment strategists, and housing market analysts regarding their 5-year expectations for future home prices in the United States. I think this gives you a real clear picture of where home prices are projected to head according to the experts. Now the Home Price Expectation Survey is a survey of 100 economists, data analysts, people who are projecting out home price appreciation, and in the fourth quarter of last year this is the projection for cumulative house appreciation by 2026. So what are you looking at? They divided out the group into optimists and pessimists, optimists being the ones projecting the most appreciation over the next appreciation over the next five years and pessimists estimating on the lower side. So take a look at that orange bar, those are the pessimists, you know the experts that are saying home price appreciation on the lower side, cumulatively, by 2026 it’s going to be over 23 percent. So as experts look forward, the conditions of the market, what’s projected to happen? Home values are expected to increase in value over time, even on the lower end, 23 percent, 23.7 is pretty significant over the next five years, so locking in today’s cost is mission critical for those who have the opportunity to do so, to protect themselves in their largest monthly payment because as we know, with home prices rising, mortgage rates rising, inflation all around us, it’s going to get more expensive to purchase a home. https://pulsenomics.com/surveys/#home-price-expectations

This is the Home Price Expectation Survey of 100 economists and data analysts from Q4 of 2021, and represents their house appreciation forecasts by 2026. The group was divided into optimists and pessimists, where optimists projecting the most appreciation over the next 5 years, and the pessimists estimate on the lower end. The pessimists are saying that by 2026 houses will appreciate in value by over 23%. That is pretty significant.  

Mortgage rates remain unchanged from last week. The economy lost momentum in January, leaving mortgage rates unchanged from last week and relatively flat for a third consecutive week. This stagnation reflects the economic impact of the Omicron variant of COVID-19, which we believe will subside in the coming months. As economic recovery continues going into the spring and summer, mortgage rates are expected to resume their upward trajectory. In the meantime, recent data suggests that homebuyer demand continues to be elevated as supply remains low, driving higher home prices. Sam Khater, VP and Chief Economist, Freddie Mac
So if we look at this rise in rates, we’re at about 3.55 percent, this graphic goes back to the beginning of 2020 and we’re starting to get back in the area, we’re back in the area of where we started when the pandemic came on us in March of 2020. Just to put that in perspective. The Fed comes in and acts, the influence. They don’t control mortgage rates but they influence the rates down and now we’re back, coming back up. Certainly a sign that we can all hope for, that the economy is improving, that we’re getting through this and we’re moving ahead, that would be my word for it. If you take a little bit larger look, if you go back to the beginning of 2018, which is what this graphic shows on the average 30-year fixed, and sort of make this line of 3.55 percent, you can see where we sit there, right? Certainly we’re higher back in 2018 and ‘19 started to come down and certainly dropped to historic lows during the pandemic and we’re starting to come back out of that. You know perspective on that, again from Freddie Mac, “As mortgage rates rise, we do expect some moderation in housing demand, causing house price growth to temper. However, the combination of a large number of entry level homebuyers facing a shortage of entry level inventory of homes for sale should keep the housing market competitive.” No doubt we’ll see a housing market that is competitive this year. http://www.freddiemac.com/pmms/pmms_archives.html

We’ve recently seen a rise in mortgage rates. Some of the last reported numbers have us around 3.55%, which is certainly higher than in some past years, but the housing market is expected to remain pretty competitive this year. It’s about to start feeling like interest rates are going to be high, but they are historically low for the U.S.

As mortgage rates rise, we do expect some moderation in housing demand, causing house price growth to temper. However, the combination of a large number of entry level homebuyers facing a shortage of entry level inventory of homes for sale should keep the housing market competitive... In 2022, we expect purchase originations to grow from 1.9 trillion in 2021 to 2.1 trillion in 2022, while refinance activity is anticipated to decrease, from 2.7 trillion in 2021 to 1.2 trillion in 2022. Freddie Mac

Let’s look at two of the mortgage markets – the purchase market and the refinance market. The purchase market is forecasted to grow, and the refinance market is forecasted to constrict – a typical reaction in a rising rate environment.

This is a look at the 10-year treasury, going back to the beginning of December, just two months ago, and what do we know? During that time, the rate on the 10-year treasury yield has skyrocketed, knowing on the door right now, of 2 percent https://www.macrotrends.net/2016/10-year-treasury-bond-rate-yield-chart

Let’s tie in the 10-year treasury for a moment. In the last 2 months, the rate on the 10-year treasury yield has skyrocketed. Why is that important?

 . For the last 50 years, the relationship between the mortgage rate and the 10-year treasury yield has been almost symbiotic, okay? Wherever the 10-year treasury yield goes, there goes the 30-year fixed rate, okay? The Fed and the Fed raising rates does not control interest rates, it can only hope to influence it. What we want to watch is the 10-year treasury yield. https://ycharts.com/indicators/10_year_treasury_rate www.freddiemac.com

For the last 50 years, the relationship between the mortgage rate and the 10-year treasury yield has been almost symbiotic. Wherever the 10-year treasury yield goes, there goes the 30-year fixed rate. The Fed does not control interest rates – it can only hope to influence them. Overall, the 10-year treasury yield may be something worth watching.

Mortgage rates hit their highest levels since March 2020, leading to the slowest pace of refinance activity in over two years. Joel Kan, Associate VP of Economic and Industry Forecasting, MBA

Month after month we have talked about why we will not see a wave of foreclosures coming to the market, so let’s wrap up this month looking at the latest data.

Loans in forbearance have fallen below one million. This is massive. We’re at roughly 780,000 loans in forbearance today and that equates to only about 1.4 percent of mortgages. If you think about where we started, over there in the red bars on the left, there were nearly five million homes in the forbearance plan in May of 2020 and we’re down to about 780,000. So huge progress and just one more way that shows that the forbearance program has really helped homeowners change their situations, stay in their homes and really be in a better place than they would have been in such a time of economic uncertainty, and this is vastly different than what we saw in 2008. https://www.blackknightinc.com/blog-posts/

Loans in forbearance have fallen below one million. This is huge. We are at roughly 780,000 loans in forbearance which equates to 1.4% of mortgages. It is wonderful to see that the forbearance program has really helped homeowners change their situations during such a time of economic uncertainty.

As the COVID-19 pandemic continues to create uncertainty in the global economy, the overwhelming majority (89%) of single-family homeowners who sought financial assistance through COVID-related mortgage payment forbearance plans have exited those plans. Andy Walden, VP of Market Research, Black Knight Data
38.1 percent of homeowners exiting the forbearance plan are paid in full. So they’ve made their monthly payments or they’ve paid off their loan. They’ve done something to bring their payments current and they’re in a great place, they’re walking away no issue. Now, 43.7 percent are workouts or repayment plans. This is the game-changing section, this is the section we didn’t have the last time around when the housing bubble burst, because these are the homeowners who have been able to make a modification, a loan deferral, to go back to their bank and work with their bank or their lender to change their situation and stay in their homes. This is huge and what we’ve been saying over time is this section is getting a little bit bigger than the green section and that’s because more and more people have been able to go back and work out an alternate plan. That is massive. Now, the percentage of homeowners that are still in trouble are in the orange section, 18.2 percent, but what this does mean is that these homeowners are exiting the plan without a loss mitigation plan, but on the safe side, what we know from Black Knight is that 93 percent of homeowners in the forbearance plan have at least 10 percent equity. So when you have that equity, you also have the opportunity to potentially sell your home rather than go into forbearance. So people sitting in this situation, you know 10 percent is kind of that tipping point of you could sell your house, you could pay off your fees, you could you know maybe even walk away with a little cash in your pocket if you sell your home, and so FEBRUARY 2022 KCM – FEBRUARY 2022 6 of 7 that gives someone a different opportunity than going into forbearance. We have a very strong equity situation across the country right now, enabling that opportunity. https://www.mba.org/news-research-and-resources/newsroom https://www.mba.org/2022-press-releases/january/share-of-mortgage-loans-in-forbearance-decreases-to-141-percent-in-december-2021

Looking at loans upon exiting the forbearance program, about 38% percent of homeowners are paid in full by either making monthly payments or paying off their loan. Then, about 44% percent are on some sort of repayment plan – homeowners who have been able to make a loan modification or deferral. Unfortunately, 18.2% of homeowners are exiting the forbearance plan without a loss mitigation plan. The bright side of that is, according to Black Knight, 93% of homeowners in a forbearance plan have at least 10% equity, allowing them the opportunity to sell their home. To put this all in perspective, during the housing bubble burst in 2008, we saw 9.3 million homes go into foreclosure. We are in a very different situation today.

What this says here is that 422,360 fewer foreclosures over the last year. So we have significantly fewer foreclosures today than we would even in a normal year. 2017, 2018 and 2019. The number of foreclosures we had in those normal years leading up to the pandemic averaged just under 300,000, and so the unfortunate reality is that in this country, every year there are homeowners who do go into the foreclosure process. You know they have a job loss or a challenging financial situation, something happens where homeowners have to give their homes back to their bank or their lender. In 2017 through 2019 that number averaged out to about 290,000. Now if you look at 2020 and 2021, these were not normal years. This is where the forbearance program came into play and there were far fewer foreclosures in each of those years. So if you look at the red bar under 2020, there were 120,000 foreclosures in 2020, that was short 161,000 of what would be normal. 2021 through the third quarter is what we have data for right now, 29,000, so massively short. So that’s where that 422,360 number comes from and contextually, if you think about that, that is incredibly low. In fact it is so low, I think this next graph really shows it well, foreclosure activity is actually at an all-time low. \ https://www.newyorkfed.org/microeconomics/hhdc.html

We have significantly fewer foreclosures today than we would even in a normal year. Obviously, the forbearance program came allowed us to see record low foreclosures in the most recent years.

So, look at 2021. Where we are so far, there are 151,000 foreclosure filings. Now we never want any one home owner to go through the foreclosure process, we certainly don’t want that to happen. We believe in homeownership and the value that the brings everyone, but if you put this into context and you look at 2007 to 2015, millions of homeowners were going into the foreclosure process, and that is vastly different from where we are today. I mean even in this number of 151,000, if it doubles, if it triples, if it quadruples, keeps going, we’re nowhere near where we were when the housing bubble burst, and this is massively impactful, showing that the fundamentals of today’s market are just very, very different today. https://www.attomdata.com/news/market-trends/foreclosures/attom-year-end-2021-u-s-foreclosure-market-report/

Foreclosure activity is at an all-time low. We are at 151,000 foreclosures, whereas in 2007 to 2015, millions of homeowners were going into the foreclosure process. Even if this number of 151,000 doubled, tripled, or even quadrupled, we would be nowhere near where we were when the housing bubble burst.

We may see a little bit of an uptick in foreclosure rates in 2022. Just an uptick though, from an extraordinarily low level, we’re not expecting to see a big increase... We expect delinquency rates overall on home mortgages to actually continue to remain quite, quite low. Maiclaire Bolton-Smith, Senior Leader of Research, CoreLogic
405 closed sales, $273,382 average sales price, 1069 active inventory, 570 new listings, 383 pending sales

If you’re following along with the news today, you’re probably hearing a lot about record-breaking home prices, rising consumer costs, supply chain constraints, and more. And if you’re thinking about purchasing a home this year, all of these inflationary concerns are likely making you wonder if you should wait to buy. Investopedia explains that during a period of high inflation, prices rise across the board. And while home prices aren’t immune from this increase, here’s why inflation shouldn’t stop you from buying a home in 2022.

Homeownership Offers Stability and Security

Home prices have been increasing for quite some time, and experts say they’re going to continue to climb throughout 2022. So, as a buyer, how can you protect yourself from rising costs for things like food, shelter, entertainment, and other goods and services? The answer lies in housing.

Buying a home allows you to lock in your monthly mortgage payment for the foreseeable future. That means as other prices rise, your monthly payment will be consistent thanks to your fixed-rate mortgage. This gives you the peace of mind that the bulk of your housing costs is shielded from inflation.

James Royal, Senior Wealth Management Reporter at Bankrate, says:

“A fixed-rate mortgage allows you to maintain the biggest portion of housing expenses at the same payment. Sure, property taxes will rise and other expenses may creep up, but your monthly housing payment remains the same.”

If you rent, you don’t have that same benefit and you won’t be protected from rising housing costs. As an added incentive to buy, consider that today’s mortgage interest rates are lower than they have been in decades. While inflation decreases what your dollars can buy, low mortgage rates help counteract it by boosting your purchasing power so you can get more home for your money. They also help keep your monthly payments down. This is especially important during an inflationary period because you’ll want to protect yourself from the impact of inflation as much as possible.

Ali Wolf, Chief Economist at Zonda, explains:

“If you have cash and are expecting inflation, you want to think through where you can put your money so it does not lose value. Housing is commonly looked at as a good inflation hedge, especially with interest rates so low.”

The best hedge against inflation is a fixed housing cost. That’s why you shouldn’t let it stop you from buying a home this year.

Inflation is causing one in four buyers to rethink their home buying timeline. 75% of home buyers said inflation is causing them to reconsider their home buying plans, according to a Redfin study.

The way Americans interpret news about rising prices can have a variety of effects on their financial decisions, including homebuying… Some people may delay buying because they’re worried that with prices rising on everything from food to fuel, now is not the right time to make a huge purchase – but others might move faster to find a house because they’re worried home prices and rent prices will increase even more, and they want to lock in a fixed payment.

Daryl Fairweather, Chief Economist at Redfin

This news comes as reports surface inflation is at it’s highest level in about 40 years, and prices are increasing 6.8% in November compared to last year. Adding on to price increases, gas and other energy sources also play a major role in driving inflation.

It is important to note that inflation’s impact on the decision to purchase a home isn’t always directly related to home prices. For about 75% of buyers gas prices caused them to rethink their home purchase when considering their commute.

Different homebuyers react to high fuel prices in different ways, depending on their circumstances… Some people will pay a premium to shorten their commute, while others will opt for a more affordable home to make up for expensive gas or a new – but more fuel-efficient – vehicle.

Taylor Marr, Chief Economist at Redfin

When it comes to rising energy costs, about 35% of respondents to the Redfin survey said they will add energy-efficient features to their home, about 30% will look for a home that already has energy-efficient features, and 15% plan to search for a smaller home.

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