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Author: Seth Pfaehler

What’s Ahead for Mortgage Rates and Home Prices?

Now that the end of 2022 is within sight, you may be wondering what’s going to happen in the housing market next year and what that may mean if you’re thinking about buying a home. Here’s a look at the latest expert insights on both mortgage rates and home prices so you can make your best move possible.

Mortgage Rates Will Continue To Respond to Inflation

There’s no doubt mortgage rates have skyrocketed this year as the market responded to high inflation. The increases we’ve seen were fast and dramatic, and the average 30-year fixed mortgage rate even surpassed 7% at the end of last month. In fact, it’s the first time they’ve risen this high in over 20 years (see graph below):

What’s Ahead for Mortgage Rates and Home Prices? | Simplifying The Market

In their latest quarterly report, Freddie Mac explains just how fast the climb in rates has been:

“Just one year ago, rates were under 3%. This means that while mortgage rates are not as high as they were in the 80’s, they have more than doubled in the past year. Mortgage rates have never doubled in a year before.”

Because we’re in unprecedented territory, it’s hard to say with certainty where mortgage rates will go from here. Projecting the future of mortgage rates is far from an exact science, but experts do agree that, moving forward, mortgage rates will continue to respond to inflation. If inflation stays high, mortgage rates likely will too.

Home Price Changes Will Vary by Market

As buyer demand has eased this year in response to those higher mortgage rates, home prices have moderated in many markets too. In terms of the forecast for next year, expert projections are mixed. The general consensus is home price appreciation will vary by local market, with more significant changes happening in overheated areas. As Mark Fleming, Chief Economist at First American, says:

“House price appreciation has slowed in all 50 markets we track, but the deceleration is generally more dramatic in areas that experienced the strongest peak appreciation rates.”

Basically, some areas may still see slight price growth while others may see slight price declines. It all depends on other factors at play in that local market, like the balance between supply and demand. This may be why experts are divided on their latest national forecasts (see graph below):

What’s Ahead for Mortgage Rates and Home Prices? | Simplifying The Market

Bottom Line

If you want to know what’s happening with home prices or mortgage rates, let’s connect so you have the latest on what experts are saying and what that means for our area.

The Majority of Americans Still View Homeownership as the American Dream

Buying a home is a powerful decision, and it remains a key part of the American Dream. In fact, the 2022 Consumer Insights Report from Mynd found the majority of people polled still view homeownership as a key life achievement. Let’s explore just a few of the reasons why so many Americans continue to value homeownership.

The Financial Benefits of Owning a Home

One possible reason homeownership is viewed so highly is because owning a home is a significant wealth-building tool, and it provides meaningful financial stability over renting by locking in your monthly housing payments for the length of your home loan. An article from Forbes explains:

“Understanding the potential benefits of homeownership helps individuals see the value of owning property instead of renting. . . . household wealth among homeowners is a whopping 1,469% higher on average compared to renters, excluding home equity, making the allure of homeownership even more enticing.”

Over time, owning a home not only helps boost your own net worth, but it also sets future generations up for success as you pass that wealth down. That may be why the Mynd report also says:

“Most Americans (78%) still associate homeownership with the ‘American dream.’ And nearly two-thirds of Americans (65%) see homeownership as a means of building intergenerational wealth.”

The Non-Financial Benefits of Homeownership

While the financial benefits of owning a home are important, becoming a homeowner impacts you on a social and emotional level, too. As Mark Fleming, Chief Economist for First American, says:

“. . . buying a home is not just a financial decision. It’s also a lifestyle decision.”

Your home provides feelings of achievement, responsibility, and more. 3by30 highlights the top 10 benefits homeowners enjoy. A few non-financial advantages include:

  • Providing you with more freedom and control over your living space
  • Giving you a greater sense of pride
  • Helps with community engagement

What Does That Mean for You?

If your definition of the American Dream involves greater freedom and prosperity, then homeownership could play a major role in helping you achieve that dream. While it may feel challenging to buy a home today as mortgage rates and home prices rise, if the time is right for you, know that there are incredible benefits waiting for you at the end of your journey. You’ll have a place you can grow your wealth, call your own, and feel most comfortable.

Like the National Association of Realtors (NAR) says:

“. . . research has consistently shown that homeownership is also associated with multiple economic and social benefits to individual homeowners. Homeownership has always been an important way to build wealth.”

Bottom Line

Buying a home is a powerful decision and a key part of the long-term dream for many Americans. And if homeownership is part of your dreams this year, let’s connect to start the process today.

Key Factors Affecting Home Affordability Today

Every time there’s a news segment about the housing market, we hear about the affordability challenges buyers are facing today. Those headlines are focused on how much mortgage rates have climbed this year. And while it’s true rates have risen dramatically, it’s important to remember they aren’t the only factor in the affordability equation.

Here are three measures used to establish home affordability: home prices, mortgage rates, and wages. Let’s look closely at each one.

1. Mortgage Rates

This is the factor most people are focused on when they talk about homebuying conditions today. So far, current rates are almost four full percentage points higher than they were at the beginning of the year. As Len Kiefer, Deputy Chief Economist at Freddie Mac, explains:

“U.S. 30-year fixed mortgage rates have increased 3.83 percentage points since the end of last year. That’s the biggest year-to-date increase in rates in over 50 years.”

That increase in mortgage rates is impacting how much it costs to finance a home purchase, creating a challenge for many buyers that’s pricing some out of the market. While the current global uncertainty makes it difficult to project where mortgage rates will go in the future, experts do say that rates will likely remain high as long as inflation does.

2. Home Prices

The second factor at play is home prices. Home prices have made headlines over the past few years because they skyrocketed during the pandemic. Now, the most recent Home Price Index from S&P Case-Shiller shows home values continued to decelerate for a fifth consecutive month (shown in green in the graph below):

Key Factors Affecting Home Affordability Today | Simplifying The Market

This deceleration is happening because higher mortgage rates are moderating demand, and as a result, easing the buyer competition and bidding wars that previously drove prices up.

What’s worth noting though, is how much higher home prices still are than they were before the pandemic (shown in blue in the graph above). Even now, we have a long way to go to get to more normal levels of home price appreciation, which is historically closer to 4%. When both mortgage rates and home prices are high, affordability and your purchasing power become a greater challenge.

But while prices are still elevated in many markets, some areas are seeing slight declines. It all depends on your local market. For insight into what’s happening in your area, reach out to a trusted real estate professional.

3. Wages

The one big, positive component in the affordability equation is the increase in American wages. The graph below uses data from the Bureau of Labor Statistics (BLS) to show how wages have grown over time. This year is no exception.

Key Factors Affecting Home Affordability Today | Simplifying The Market

As the Bureau of Labor Statistics (BLS) reports:

“Median weekly earnings of the nation’s 120.2 million full-time wage and salary workers were $1,070 in the third quarter of 2022 (not seasonally adjusted), the U.S. Bureau of Labor Statistics reported…This was 6.9 percent higher than a year earlier…”

So, when you think about affordability, remember the full picture includes more than just mortgage rates. Home prices and wages need to be factored in as well. Because wages have been rising, they’re a big reason why serious buyers are still purchasing homes this year.

If you have questions or want to learn more, reach out to a trusted advisor who can explain how all of these variables work together and what’s happening in your area. As Leslie Rouda Smith, President of the National Association of Realtors (NAR), says:

“Buying or selling a home involves a series of requirements and variables, and it’s important to have someone in your corner from start to finish to make the process as smooth as possible… and objectivity to deliver trusted expertise to consumers in every U.S. ZIP code.”

Bottom Line

To learn more, let’s connect today and make sure you have a trusted lender so you’re able to make an informed decision if you’re planning to buy or sell a home right now.

Homeownership Wins Over Time [INFOGRAPHIC]

Homeownership Wins Over Time [INFOGRAPHIC] | Simplifying The Market

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